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Section 1: 424B3 (DNB FINANCIAL CORPORATION FORM 424(B)(3))

 
Filed Pursuant to Rule 424(b)(3)
File Number 333-212252
 
 
Proxy Statement and Prospectus of
DNB Financial Corporation
 
Proxy Statement of
East River Bank

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Shareholders:

On April 4, 2016, DNB Financial Corporation, or DNB, and East River Bank, or ERB, entered into an Agreement and Plan of Merger, which we refer to as the merger agreement, under which ERB will merge with and into DNB First, N.A., or DNB First, a national banking association and wholly owned subsidiary of DNB.

If the merger is completed, ERB shareholders will be entitled to elect to receive, for each share of ERB common stock they own, subject to the election and adjustment procedures provided in the merger agreement and described in this joint proxy statement/prospectus, 0.6562 of a share of DNB common stock or $18.65 in cash.  The election of shares of DNB common stock or cash will be subject to proration such that 2,085,662 shares of ERB common stock, or approximately 85.3% of the currently outstanding ERB shares, will be exchanged for shares of DNB common stock, with the remaining ERB shares to be exchanged for cash. The aggregate cash consideration payable to ERB shareholders will be $6.7 million, which amount is subject to increase in the event that outstanding options to purchase shares of ERB common stock are exercised prior to completion of the merger.  If more ERB shareholders make valid elections to receive either shares of DNB common stock or cash than is available as either stock or cash consideration pursuant to the terms of the merger agreement, ERB shareholders electing the over-subscribed form of merger consideration will have the over-subscribed consideration proportionately reduced and substituted with consideration in the other form. The material federal income tax consequences of the merger to ERB shareholders will depend, in part, on whether a shareholder receives shares of DNB common stock, cash, or a combination thereof in exchange for shares of ERB common stock.  These consequences are discussed in "Material United States Federal Income Tax Consequences of the Merger" beginning on page 92.

The market value of the shares of DNB common stock will fluctuate with the market price of DNB common stock and will not be known at the time ERB shareholders and DNB shareholders vote at their respective special meetings. The cash consideration is a fixed amount and will remain fixed regardless of any changes in the market value of the shares of DNB common stock.  However, as described in more detail elsewhere in this joint proxy statement/prospectus, under the terms of the merger agreement, if the average price of DNB common stock over a specified period of time decreases below certain specified thresholds and other specified conditions are met, ERB would have a right to terminate the merger agreement, unless DNB elects to make a compensating adjustment to the exchange ratio, which would result in additional shares of DNB common stock being issued.

DNB's common stock trades on the NASDAQ Capital Market under the symbol "DNBF."  The table below presents the closing prices of DNB common stock on April 1, 2016, the last trading day prior to the public announcement of the merger, and on August 2, 2016, the last practicable trading day before the distribution of this joint proxy statement/prospectus. The table also presents the implied value for each share of ERB common stock converted into shares of DNB common stock on those dates, as determined by multiplying the closing price of DNB common stock on those dates by the exchange ratio of 0.6562. This table also presents the implied value for each share of ERB common stock converted into cash, based on the fixed cash consideration of $18.65 per share.

We urge you to obtain current market quotations for DNB.

 
 
DNB Common Stock
   
Implied Value of One Share of ERB Common Stock
   
Value of the Cash Consideration for One Share of ERB Common Stock
 
At April 1, 2016
 
$
29.50
   
$
19.36
   
$
18.65
 
At August 2, 2016
 
$
26.00
   
$
17.06
   
$
18.65
 

Your vote is important. In order to complete the merger, shareholders of DNB must approve the issuance of shares of DNB common stock to ERB shareholders in connection with the merger and shareholders of ERB must approve and adopt the merger agreement.  Approval of the issuance of the shares of DNB common stock in connection with the merger requires the affirmative vote of the holders of a majority of the votes cast by holders of DNB common stock entitled to vote at the DNB special meeting of shareholders. Approval and adoption of the merger agreement requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of ERB common stock entitled to vote at the ERB special meeting of shareholders.


DNB will hold a special meeting of shareholders to consider and vote on the proposed issuance of shares of DNB common stock in connection with the merger at 10:00 a.m., local time, on Wednesday, September 14, 2016 at the Downingtown Country Club, 85 Country Club Drive, Downingtown, Pennsylvania 19335.  ERB will hold a special meeting of shareholders at 9:00 a.m., local time, on Wednesday, September 14, 2016 at the Chubb Hotel & Conference Center, 800 Ridge Pike, Lafayette Hill, Pennsylvania 19444 to consider and vote on the approval and adoption of the merger agreement.

The boards of directors of DNB and ERB have each approved the merger agreement and the transactions contemplated thereby, including the merger.  DNB's board of directors recommends that DNB shareholders vote "FOR" approval of the proposal to issue shares of DNB common stock to ERB shareholders in connection with the merger and "FOR" the approval of the adjournment of the DNB special meeting, if necessary, to solicit additional proxies in favor of that proposal.  ERB's board of directors unanimously recommends that ERB shareholders vote "FOR" approval and adoption of the merger agreement and "FOR" the approval of the adjournment of the ERB special meeting, if necessary, to solicit additional proxies in favor of that proposal.

Whether or not you plan to attend your company's special meeting, your board of directors urges you to vote by completing, signing, dating and returning the enclosed proxy card as soon as possible in the enclosed postage-paid envelope. In addition, DNB shareholders may vote by calling the toll-free telephone number or by using the Internet as described in the instructions included with the DNB proxy card. This will not prevent you from voting in person at your company's special meeting, but will assure that your vote is counted if you are unable to attend. If you are a shareholder whose shares are not registered in your own name, you will need additional documentation from your bank, broker, nominee or other holder of record in order to vote in person at the special meeting.

This joint proxy statement/prospectus provides you with detailed information about the merger agreement, the merger and the proposals to be voted on at the DNB and ERB special meetings. In addition to being a proxy statement of each of DNB and ERB, this joint proxy statement/prospectus also is the prospectus of DNB for the shares of DNB common stock that will be issued to ERB shareholders in connection with the merger.

We urge you to read this entire joint proxy statement/prospectus, including the Annexes hereto, and the documents incorporated by reference herein, carefully because they contain important information about the merger agreement, the merger and the proposals to be voted on at the DNB and ERB special meetings. In particular, you should read carefully the information under the section entitled "Risk Factors" beginning on page 25. You can also obtain information about DNB from documents that DNB files with the Securities and Exchange Commission, or SEC.

Sincerely,

 
William J. Hieb
President and Chief Executive Officer
DNB Financial Corporation
 
Christopher P. McGill
President and Chief Executive Officer
East River Bank
 
 
 
None of the SEC, any state securities commission, or any bank or other regulatory body has approved or disapproved of the securities to be issued in the merger or passed upon the accuracy or adequacy of this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The shares of DNB common stock to be issued to ERB shareholders in connection with the merger are not deposits or savings accounts or other obligations of any bank or savings association, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

The date of this joint proxy statement/prospectus is August 2, 2016, and it is first being mailed or otherwise delivered to shareholders on or about August 8, 2016.

DNB FINANCIAL CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 14, 2016

TO THE SHAREHOLDERS OF DNB FINANCIAL CORPORATION:

NOTICE IS HEREBY GIVEN that a special meeting of shareholders of DNB Financial Corporation, or DNB, will be held on Wednesday, September 14, 2016 at 10:00 a.m. local time at the Downingtown Country Club, 85 Country Club Drive, Downingtown, Pennsylvania 19335, to consider and vote upon the following matters:

1.
 
A proposal to approve the issuance of shares of DNB common stock to holders of East River Bank common stock in connection with the merger, as contemplated by the Agreement and Plan of Merger, dated as of April 4, 2016, by and between DNB and East River Bank.
 
 
 
2.
 
A proposal to authorize the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to approve the proposal to issue shares of DNB common stock to holders of East River Bank common stock in connection with the merger.

We have fixed the close of business on July 28, 2016 as the record date for determining those DNB shareholders entitled to notice of, and to vote at, the DNB special meeting and any adjournments or postponements of the DNB special meeting. Only DNB shareholders of record at the close of business on that date are entitled to vote at the DNB special meeting and any adjournments or postponements of the DNB special meeting.

Approval of the proposal for the issuance of the shares of DNB common stock to holders of East River Bank common stock in connection with the merger and the proposal to authorize the adjournment of  the DNB special meeting, if necessary or appropriate, to solicit additional proxies to approve the proposal to issue shares of DNB common stock to holders of East River Bank common stock in connection with the merger each requires the affirmative vote of the holders of a majority of the votes cast by holders of DNB common stock entitled to vote at the DNB special meeting.

Please vote as soon as possible. Whether or not you intend to attend the DNB special meeting, please vote as soon as possible by signing and returning the enclosed proxy card in the postage-paid envelope provided, by calling the toll-free telephone number or by using the Internet as described in the instructions included with your proxy card.  If your shares are held in "street name" through a bank, broker, nominee or other holder of record, please follow the instructions on the voting instruction card provided by such person. If you attend the DNB special meeting, you may vote in person if you wish, even if you have previously returned your proxy card. If you wish to attend the DNB special meeting and vote in person and your shares are held in "street name" through a bank, broker, nominee or other holder of record, you must bring with you a proxy or letter from the bank, broker, nominee or other holder of record to confirm your beneficial ownership of the shares.

DNB's board of directors has approved the merger agreement and the issuance of shares of DNB common stock to holders of East River Bank common stock in connection with the merger. DNB's board of directors recommends that DNB shareholders vote "FOR" approval of the proposal for the issuance of the shares of DNB common stock to holders of East River Bank common stock in connection with the merger and "FOR" the proposal to authorize the adjournment of  the DNB special meeting, if necessary or appropriate, to solicit additional proxies to approve the proposal to issue shares of DNB common stock to holders of East River Bank common stock in connection with the merger.

The enclosed joint proxy statement/prospectus provides a detailed description of the DNB special meeting, the merger, the merger agreement and other documents related to the merger and other related matters. We urge you to read the joint proxy statement/prospectus, including the attached Annexes and any documents incorporated in the joint proxy statement/prospectus by reference, carefully and in their entirety.

 
 
BY ORDER OF THE BOARD OF DIRECTORS,
 
 
 
 
Gerald F. Sopp, Corporate Secretary

Downingtown, Pennsylvania
August 2, 2016


EAST RIVER BANK
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 14, 2016

TO THE SHAREHOLDERS OF EAST RIVER BANK:

NOTICE IS HEREBY GIVEN that a special meeting of shareholders of East River Bank, or ERB, will be held on Wednesday, September 14, 2016 at 9:00 a.m. local time at the Chubb Hotel & Conference Center, 800 Ridge Pike, Lafayette Hill, Pennsylvania 19444, to consider and vote upon the following matters:

1.
 
A proposal to approve and adopt the Agreement and Plan of Merger, dated as of April 4, 2016 (the "merger agreement"), by and between DNB Financial Corporation and East River Bank, which, among other matters, provides for: (i) the merger of East River Bank with and into DNB First, N.A., a wholly owned subsidiary of DNB, with DNB First, N.A., as the surviving entity, and (ii) upon consummation of the merger, the exchange of each outstanding share of ERB common stock (other than shares the holders of which perfect dissenters' rights of appraisal), subject to the election, proration and adjustment procedures provided in the merger agreement, for 0.6562 of a share of DNB common stock or $18.65 in cash.
 
 
 
2.
 
A proposal to authorize the adjournment of the ERB special meeting, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to approve and adopt the merger agreement.
 
The close of business on July 28, 2016 has been fixed as the record date for determining those ERB shareholders entitled to notice of, and to vote at, the ERB special meeting and any adjournments or postponements of the ERB special meeting. Only ERB shareholders of record at the close of business on that date are entitled to vote at the ERB special meeting and any adjournments or postponements of the ERB special meeting.

Shareholders of East River Bank have the right to dissent and obtain payment of the fair value of their shares if the merger is completed, but only if they comply with all requirements of Subchapter D of Chapter 15 of the Pennsylvania Business Corporation Law ("PBCL"). A copy of Subchapter D of Chapter 15 of the PBCL is included as Appendix  D to the accompanying joint proxy statement/prospectus and a summary of these provisions can be found under "The Merger – Dissenters' Rights" in the accompanying joint proxy statement/prospectus.

Please vote as soon as possible. Whether or not you intend to attend the special meeting, please vote as soon as possible by signing and returning the enclosed proxy card in the postage-paid envelope provided. If your shares are held in "street name" through a bank, broker, nominee or other holder of record, please follow the instructions on the voting instruction card provided by such person. If you attend the ERB special meeting, you may vote in person if you wish, even if you have previously returned your proxy card. If you wish to attend the ERB special meeting and vote in person and your shares are held in "street name" through a bank, broker, nominee or other holder of record, you must bring with you a proxy or letter from the bank, broker, nominee or other holder of record to confirm your beneficial ownership of the shares.

ERB's board of directors has approved the merger agreement and recommends that ERB shareholders vote "FOR" approval and adoption of the merger agreement and "FOR" the proposal to authorize the adjournment of the ERB special meeting, if necessary or appropriate, to solicit additional proxies to approve the proposal to approve and adopt the merger agreement.

The enclosed joint proxy statement/prospectus provides a detailed description of the ERB special meeting, the merger, the merger agreement and other documents related to the merger and other related matters. We urge you to read the joint proxy statement/prospectus, including the attached Annexes and any documents incorporated in the joint proxy statement/prospectus by reference, carefully and in their entirety.

 
 
BY ORDER OF THE ERB BOARD OF DIRECTORS,
 
 
 
 
 
Jerry L. Cotlov, Corporate Secretary

Philadelphia, Pennsylvania
August 2, 2016


ADDITIONAL INFORMATION

DNB files reports, proxy statements and other information with the U.S. Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. You can obtain any of the documents filed with or furnished to the Securities and Exchange Commission by DNB at no cost from the SEC's website at http://www.sec.gov. You may also request copies of these documents at no cost by contacting DNB at the following address:

 
DNB Financial Corporation
4 Brandywine Avenue
Downingtown, PA 19335
(484) 359-3138
Attention:  Gerald F. Sopp
Executive Vice President and Chief Financial Officer
 

You will not be charged for any of these documents that you request. If you would like to request documents from DNB, you must do so no later than five business days before the date of your special meeting to ensure timely delivery.  This means that DNB shareholders requesting documents must do so by September 7, 2016, in order to receive them before DNB's special meeting, and ERB shareholders requesting documents must do so by September 7, 2016, in order to receive them before ERB's special meeting.

See "Where You Can Find More Information" on page 181.

ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form S-4 filed by DNB with the Securities and Exchange Commission, or the SEC (File No. 333-212252) under the Securities Act of 1933, as amended, which we refer to as the Securities Act, constitutes a prospectus of DNB with respect to the shares of DNB common stock to be issued to ERB shareholders in connection with the proposed merger. This document also constitutes a proxy statement of each of DNB and ERB in connection with each of their respective special meetings of shareholders.  This document also provides the notice of special meeting of each of DNB and ERB in accordance with state law with respect to each of their special meetings at which shareholders will consider and vote on the proposals described in the respective notices.

You should rely only on the information contained in this document. We have not authorized anyone to provide you with information that is different from that contained in this document. This document is dated August 2, 2016. You should not assume that the information contained in this document is accurate as of any date other than that date. Neither the mailing of this document to DNB and ERB shareholders nor the issuance by DNB of its shares in connection with the merger will create any implication to the contrary.

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Except where the context otherwise indicates, information contained in this document regarding DNB has been provided by DNB and information contained in this document regarding ERB has been provided by ERB.



TABLE OF CONTENTS

 
 
PAGE
 
 
 
QUESTIONS AND ANSWERS ABOUT THE MERGER AND SPECIAL MEETINGS
 
SUMMARY
 
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
 
SELECTED FINANCIAL AND OTHER DATA OF DNB
 
SELECTED FINANCIAL AND OTHER DATA OF ERB
 
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL DATA
 
RISK FACTORS
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF DNB
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ERB
 
DNB SPECIAL MEETING
 
DNB PROPOSALS
 
ERB SPECIAL MEETING
 
ERB PROPOSALS
 
THE MERGER
 
THE MERGER AGREEMENT
 
ACCOUNTING TREATMENT
 
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
 
DIRECTORS AND OFFICERS OF DNB AND RELATED MATTERS
 
INFORMATION ABOUT DNB
 
INFORMATION ABOUT ERB
 
MARKET PRICE AND DIVIDENDS
 
DESCRIPTION OF DNB CAPITAL STOCK
 
COMPARISON OF DNB AND ERB SHAREHOLDERS' RIGHTS
 
LEGAL MATTERS
 
EXPERTS
 
OTHER MATTERS
 
SOLICITATION OF PROXIES
 
DEADLINES FOR SUBMITTING SHAREHOLDER PROPOSALS
 
WHERE YOU CAN FIND MORE INFORMATION
 
 
 
 
INDEX TO DNB CONSOLIDATED FINANCIAL STATEMENTS
 
INDEX TO ERB CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
 
Agreement and Plan of Merger dated April 4, 2016 between DNB Financial Corporation and East River Bank.
 
Opinion of Ambassador Financial Group, Inc.
 
Opinion of Griffin Financial Group, LLC.
 
Pennsylvania Statutory Provisions Relating to Dissenters' Rights


i

QUESTIONS AND ANSWERS ABOUT THE MERGER AND SPECIAL MEETINGS

The following questions and answers briefly address some commonly asked questions about the merger and the DNB and ERB special meetings of shareholders.  They may not include all the information that may be important to you. You should read carefully the entire document, including the Annexes, to fully understand the merger agreement and the transactions contemplated thereby, including the merger, the issuance of shares of DNB common stock in connection with the merger, the proposals to be considered and voted on by DNB and ERB shareholders, and the voting procedures for the DNB and ERB special meetings of shareholders.

In this joint proxy statement/prospectus, we generally refer to DNB Financial Corporation as "DNB," DNB First, N.A., a national banking association and wholly owned subsidiary of DNB, as "DNB First" and East River Bank as "ERB."

Q:
 
What is the merger?
 
 
 
A:
 
On April 4, 2016, DNB and ERB entered into an Agreement and Plan of Merger, which we refer to as the merger agreement. Pursuant to the merger agreement, ERB will merge with and into DNB First, with DNB First surviving the merger. We refer to this transaction as the merger.  A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A and is incorporated by reference herein.
 
 
 
Q:
 
Why am I receiving this joint proxy statement/prospectus?
 
 
 
A:
 
We are delivering this document to you because it is a joint proxy statement being used by both the DNB board of directors and the ERB board of directors to solicit proxies from each entity's respective shareholders in connection with approval of the proposals described herein.
 
 
 
 
 
In order to consider and approve the proposals, DNB has called a special meeting of its shareholders, which we refer to as the DNB special meeting, and ERB has called a special meeting of its shareholders, which we refer to as the ERB special meeting.  This document serves as a joint proxy statement for both the DNB special meeting and the ERB special meeting and describes the proposals to be presented and voted on at each of the special meetings.
 
 
 
 
 
This document also is a prospectus that is being delivered by DNB to ERB shareholders because DNB is offering shares of its common stock to ERB shareholders in connection with the merger.
 
 
 
Q:
 
What proposals are DNB shareholders being asked to vote on?
 
 
 
A:
 
DNB shareholders are being asked to approve the issuance of shares of DNB common stock to ERB shareholders in connection with the merger.
 
 
 
 
 
In addition, DNB shareholders are being asked to approve a proposal to adjourn the DNB special meeting, if necessary or appropriate, to solicit additional proxies in favor of the issuance of the shares of DNB common stock in connection with the merger.
 
 
 
Q:
 
What proposals are ERB shareholders being asked to vote on?
 
 
 
 
 
ERB's shareholders are being asked to approve and adopt the merger agreement and the transactions contemplated thereby, including the merger.
 
 
 
 
 
In addition, ERB shareholders are being asked to approve a proposal to adjourn the ERB special meeting, if necessary or appropriate, to solicit additional proxies in favor of the approval and adoption of the merger agreement.
 
 
 
Q:
 
What will ERB shareholders receive in the merger?
 
 
 
A:
 
If the merger is completed, ERB shareholders will be entitled to elect to receive, for each share of ERB common stock they own, subject to the election and adjustment procedures described in greater detail herein, 0.6562 of a share of DNB common stock or $18.65 in cash.  The election of shares of DNB common stock or cash will be subject to proration such that 2,085,662 shares of ERB common stock, or approximately 85.3% of the currently outstanding ERB shares, will be exchanged for shares of DNB common stock, with the remaining ERB shares to be exchanged for cash.
1



Q:
 
What will DNB shareholders receive in the merger?
 
 
 
A:
 
If the merger is completed, DNB shareholders will not receive any merger consideration and will continue to hold the shares of DNB common stock that they currently hold.

Q:
 
If I am an ERB shareholder, when must I elect the type of merger consideration that I wish to receive?
 
 
 
A:
 
If you are an ERB shareholder and wish to elect the type of merger consideration you wish to receive in the merger, you should carefully review and follow the instructions to be set forth in an election form.  Between 40 business days and 20 business days prior to the election deadline, DNB will initially make available and mail an election form to ERB shareholders under separate cover. You will need to sign, date and complete the election form and transmittal materials and return them to the exchange agent at the address provided in the transmittal materials. The deadline for electing the type of merger consideration you wish to receive will be the date that is the later of (i) the date of the special meeting of shareholders of ERB and (ii) the date which DNB and ERB agree is five business days before the date that the merger will be completed. Because of the way the election and proration procedures work, even if you submit a properly completed and signed election form, it is still possible that you may not receive exactly the type of merger consideration you have elected. If you do not submit a properly completed and signed election form to the exchange agent by the election deadline, you will have no control over the type of merger consideration you will receive and, as a result, you may receive only cash, only shares of DNB common stock or a combination of cash and shares of DNB common stock in the merger.
 
 
 
 
 
If you hold shares in "street name"  through a bank, broker, nominee or other holder of record you will have to follow the instructions provided by the bank, broker, nominee or other holder of record to make an election.
 
 
 
Q:
 
If I am an ERB shareholder, am I guaranteed to receive the type of merger consideration that I elect?
 
 
 
A:
 
No. If more ERB shareholders make valid elections to receive either shares of DNB common stock or cash than is available as either stock or cash consideration pursuant to the terms of the merger agreement, ERB shareholders electing the over-subscribed form of merger consideration will have the over-subscribed consideration proportionately reduced and substituted with the other form of consideration.  Please see "The Merger Agreement – Consideration to be Received in the Merger" and "The Merger Agreement – Proration Procedures" beginning on page 79 and page 80, respectively for additional information about the allocation and proration procedures that will be followed in the event of over-subscriptions.
 
 
 
Q:
 
Will the value of the merger consideration change between the date of this joint proxy statement/prospectus and the time the merger is completed?
 
 
 
A:
 
Although the amount of cash payable by DNB and the number of shares of DNB common stock that ERB shareholders will receive in connection with the merger is fixed, the value of the merger consideration consisting of shares of DNB common stock will fluctuate between the date of this joint proxy statement/prospectus and the completion of the merger based upon the market price of DNB common stock. Any fluctuation in the market price of DNB common stock after the date of this joint proxy statement/prospectus will change the value of the shares of DNB common stock that ERB shareholders may receive.
 
 
 
Q:
 
How will the merger affect holders of options to purchase shares of ERB common stock?
 
 
 
A:
 
If the merger is completed, options to purchase ERB common stock outstanding at the effective time of the merger will be exchanged for a cash payment equal to the difference between the per share cash consideration payable by DNB pursuant to the merger agreement and the corresponding exercise price of each such outstanding option.
 
 
 
Q:
 
Who will be the directors and executive officers of the combined company following the merger?
 
 
 
A:
 
Following completion of the merger, the then-current directors and executive officers of DNB will continue in office.  In addition, John F. McGill, Jr., who currently serves as chairman of ERB, will be appointed as a DNB director and will serve as Vice Chairman, and Charles A. Murray and Daniel O'Donnell, who currently serve as directors of ERB, will be appointed as DNB directors.  Christopher P. McGill, who currently serves as president and chief executive officer of ERB, will become DNB's executive vice president and chief business development officer and Jerry L. Cotlov, who currently serves as executive vice president and chief lending officer of ERB, will assume the position of DNB senior vice president and assistant chief commercial lending officer.
 
 
 
2



Q:
 
What are the federal income tax consequences of the merger?
 
 
 
A:
 
The merger has been structured to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, which we refer to as the Internal Revenue Code. It is a condition to the completion of the merger that each of DNB and ERB receive a written opinion from its respective legal counsel to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. The federal tax consequences of the merger to shareholders of ERB will depend primarily on whether they exchange their shares of ERB common stock solely for shares of DNB common stock, solely for cash or for a combination of shares of DNB common stock and cash.  It is expected that ERB shareholders will not recognize gain or loss for U.S. federal income tax purposes upon the exchange of their shares of ERB common stock for shares of DNB common stock pursuant to the merger, except with respect to any cash received by an ERB shareholder in exchange for shares of common stock or in lieu of fractional shares of DNB common stock. ERB shareholders who exchange their shares solely for cash should recognize gain or loss on the exchange. ERB shareholders who exchange their shares for a combination of DNB common stock and cash should recognize gain, but not any loss, on the exchange. The actual federal income tax consequences to ERB shareholders of electing to receive cash, shares of DNB common stock or a combination of cash and stock will not be ascertainable at the time ERB shareholders make their election because it will not be known at that time how, or to what extent, the allocation and proration procedures will apply, nor will the fair market value of the DNB common stock be known at that time.
 
 
 
 
 
This tax treatment may not apply to all ERB shareholders. Determining the actual tax consequences of the merger to ERB shareholders can be complicated. ERB shareholders should consult their own tax advisor for a full understanding of the merger's tax consequences that are particular to them. Please see "Material United States Federal Income Tax Consequences of the Merger" beginning on page 92 for further discussion of the material U.S. federal income tax consequences of the merger.
 
 
 
Q:
 
Does DNB's board of directors recommend that DNB shareholders approve the issuance of the shares of DNB common stock in connection with the merger?
 
 
 
A:
 
Yes. DNB's board of directors recommends that DNB's shareholders vote "FOR" approval of the issuance of the shares of DNB common stock in connection with the merger at the DNB special meeting. Please see "The Merger – DNB's Reasons for the Merger; Recommendation of DNB's Board of Directors" beginning on page 52 for a more detailed discussion regarding the information and factors considered by DNB's board of directors in making its recommendation.
 
 
 
Q:
 
Does ERB's board of directors recommend that ERB shareholders approve and adopt the merger agreement?
 
 
 
A:
 
Yes. ERB's board of directors has approved and determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are in the best interests of ERB's shareholders. ERB's board of directors unanimously recommends that ERB's shareholders vote "FOR" approval and adoption of the merger agreement at the ERB special meeting. Please see "The Merger – ERB's Reasons for the Merger; Recommendation of ERB's Board of Directors" beginning on page 62 for a more detailed discussion regarding the information and factors considered by ERB's board of directors in approving the merger and making its recommendation.
 
 
 
 
 
In connection with ERB's entry into the merger agreement, ERB's directors and executive officers entered into voting agreements that require, among other things, the directors and executive officers to vote in favor of the approval and adoption of the merger agreement at the ERB special meeting. As of the record date for the ERB special meeting, these directors and executive officers of ERB had the right to vote 543,702 shares of ERB common stock, or approximately 22.2% of the outstanding ERB common stock entitled to be voted at the ERB special meeting.
 
 
 
Q:
 
When and where are the special meetings of DNB and ERB?
 
 
 
A:
 
DNB – The DNB special meeting will be held at the Downingtown Country Club, 85 Country Club Drive, Downingtown, Pennsylvania 19335 on Wednesday, September 14, 2016, at 10:00 a.m. local time.
 
 
 
 
 
ERB – The ERB special meeting will be held at the Chubb Hotel & Conference Center, 800 Ridge Pike, Lafayette Hill, Pennsylvania 19444 on Wednesday, September 14, 2016, at 9:00 a.m. local time.
 
 
 
Q:
 
Who can vote at the DNB and ERB special meetings?
 
 
 
A:
 
DNB – Only holders of record of DNB common stock at the close of business on July 28, 2016, the record date for the DNB special meeting, will be entitled to vote at the DNB special meeting.
 
 
 
 
3

 
 
ERB – Only holders of record of ERB common stock at the close of business on July 28, 2016 , the record date for the ERB special meeting, will be entitled to vote at the ERB special meeting.

Q:
 
What do I need to do now?
 
 
 
A:
 
After you have carefully read this joint proxy statement/prospectus, including the Annexes hereto, and have decided how you wish to vote your shares, please vote your shares promptly. If you hold common stock in your name as a shareholder of record, please vote by completing, signing, dating and returning the enclosed proxy card as soon as possible in the enclosed postage-paid envelope. In addition, DNB shareholders may vote by calling the toll-free telephone number or by using the Internet as described in the instructions included with the DNB proxy card. If you hold your stock in "street name" through a bank or broker, you must direct your bank or broker to vote in accordance with the instructions you have received from your bank or broker.
 
 
 
Q:
 
Why is my vote important?
 
 
 
A:
 
In order to complete the merger, shareholders of DNB must approve the issuance of shares of DNB common stock to ERB shareholders in connection with the merger and shareholders of ERB must approve and adopt the merger agreement.  If you do not vote by proxy or vote in person at the DNB or ERB special meeting, as applicable, it will be more difficult to obtain the necessary quorums to hold the DNB and ERB special meetings and approve the proposals to be voted upon at the special meetings.
 
 
 
Q:
 
What constitutes a quorum for the DNB and ERB special meetings?
 
 
 
A:
 
DNB – The presence, in person or by proxy, at the DNB special meeting of shareholders entitled to cast at least a majority of the votes which all shareholders are entitled to cast on each proposal at the special meeting, will constitute a quorum for each respective proposal. Abstentions are counted as present for the purpose of determining whether a quorum is present, while broker non-votes are not counted as present unless instructions have been provided by the beneficial owner to the applicable bank, brokerage firm or nominee with respect to at least one proposal.
 
 
 
 
 
ERB – The presence, in person or by proxy, at the ERB special meeting of shareholders entitled to cast at least a majority of the votes which all shareholders are entitled to cast on each proposal at the special meeting, will constitute a quorum for each respective proposal. Abstentions are counted as present for the purpose of determining whether a quorum is present, while broker non-votes are not counted as present unless instructions have been provided by the beneficial owner to the applicable bank, brokerage firm or nominee with respect to at least one proposal.
 
 
 
Q:
 
What is the vote required to approve each proposal at the DNB special meeting?
 
 
 
A:
 
Approval of the issuance of the shares of DNB common stock in connection with the merger requires the affirmative vote of the holders of a majority of the votes cast by holders of DNB common stock entitled to vote at the DNB special meeting.  A failure to vote by a DNB shareholder entitled to vote, an abstention from voting or a broker non-vote will have no effect on the outcome of the vote to approve the issuance of the shares of DNB common stock in connection with the merger.
 
 
 
 
 
Approval of the DNB adjournment proposal requires the affirmative vote of the holders of a majority of the votes cast by holders of DNB common stock entitled to vote at the DNB special meeting. A failure to vote by a DNB shareholder entitled to vote, an abstention from voting or a broker non-vote will have no effect on the outcome of the vote to approve the adjournment proposal.
 
 
 
 
 
Please note that if you make no specification on your proxy card as to how you want your DNB shares voted before
signing and returning it, your proxy will be voted as recommended by the board of directors of DNB.
 
 
 
Q:
 
What is the vote required to approve each proposal at the ERB special meeting?
 
 
 
A:
 
Approval and adoption of the merger agreement requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of ERB common stock entitled to vote at the ERB special meeting. A failure to vote, or a failure to instruct your broker, bank or other nominee to vote, your shares of ERB common stock, an abstention from voting or a broker non-vote, each will have the same effect as a vote "AGAINST" the approval and adoption of the merger agreement.
 
 
 
 
 
Approval of the ERB adjournment proposal requires the affirmative vote of a majority of the votes cast by all shareholders present at the ERB special meeting and entitled to vote. A failure to vote by an ERB shareholder entitled to vote and an abstention from voting will have the same effect as a vote "AGAINST" the adjournment proposal.  A broker non-vote will have no effect on the outcome of the vote to approve the adjournment proposal.
 
 
 
 
4

 
 
Please note that if you make no specification on your proxy card as to how you want your ERB shares voted before signing and returning it, your proxy will be voted as recommended by the board of directors of ERB.

Q:
 
If my shares of common stock are held in "street name" by my broker, bank or other nominee, will my broker, bank or other nominee automatically vote my shares for me?
 
 
 
A:
 
No. If you own your shares in "street name," your broker, bank or other nominee cannot vote your shares without instructions from you. You should instruct your broker, bank or other nominee as to how to vote your shares, following the directions your broker, bank or other nominee provides to you. Please check the voting form used by your broker, bank or other nominee.
 
 
 
Q:
 
Can I attend the special meeting and vote my shares in person?
 
 
 
A:
 
DNB – Yes. All DNB shareholders who hold shares as of the record date for the DNB special meeting, including DNB shareholders of record and DNB shareholders who hold their shares in "street name" through banks, brokers, nominees or any other holder of record, may attend the DNB special meeting. Holders of record of DNB common stock may attend the special meeting in person and also may cast their votes as the special meeting. If you are not a DNB shareholder of record, you must obtain a proxy or letter, executed in your favor, from the record holder of your shares of common stock (such as your broker, bank or other nominee), to be able to vote in person at the DNB special meeting. If you plan to attend the DNB special meeting, you must hold your shares of common stock in your own name or have a proxy or letter from the record holder of your shares of common stock confirming your ownership and you must bring a form of personal photo identification with you in order to be admitted.
 
 
 
 
 
ERB – Yes. All ERB shareholders who hold shares as of the record date for the ERB special meeting, including ERB shareholders of record and ERB shareholders who hold their shares through banks, brokers, nominees or any other holder of record, may attend the ERB special meeting. Holders of record of ERB common stock may attend the special meeting in person and also may cast their votes as the special meeting. If you are not an ERB shareholder of record, you must obtain a proxy or letter, executed in your favor, from the record holder of your shares of common stock (such as your broker, bank or other nominee), to be able to vote in person at the ERB special meeting. If you plan to attend the ERB special meeting, you must hold your shares of common stock in your own name or have a proxy or letter from the record holder of your shares of common stock confirming your ownership and you must bring a form of personal photo identification with you in order to be admitted.
 
 
 
Q:
 
Can I change my vote?
 
 
 
A:
 
DNB – Yes. A DNB shareholder who has submitted a proxy may revoke it at any time before its exercise at the DNB special meeting by (i) giving written notice of revocation to DNB's Corporate Secretary, (ii) properly submitting to DNB a duly executed proxy bearing a later date or (iii) attending the DNB special meeting and voting in person. Any DNB shareholder entitled to vote in person at the DNB special meeting may vote in person regardless of whether a proxy has been previously given, and such vote will revoke any previous proxy.  Please note, however, that simply attending the DNB special meeting will not revoke a previously-given proxy – you must cast a new vote at the DNB special meeting in order to revoke your prior vote.
 
 
 
 
 
All written notices of revocation and other communications with respect to revocation of DNB proxies should be addressed to DNB as follows:  Gerald F. Sopp, DNB Financial Corporation, 4 Brandywine Avenue, Downingtown, PA 19335.
 
 
 
 
 
ERB – Yes. An ERB shareholder who has submitted a proxy may revoke it at any time before its exercise at the ERB special meeting by (i) giving written notice of revocation to ERB's Corporate Secretary, (ii) properly submitting to ERB a duly executed proxy bearing a later date or (iii) attending the ERB special meeting and voting in person. Any ERB shareholder entitled to vote in person at the ERB special meeting may vote in person regardless of whether a proxy has been previously given, and such vote will revoke any previous proxy.  Please note, however, that simply attending the ERB special meeting will not revoke a previously-given proxy – you must cast a new vote at the ERB special meeting in order to revoke your prior vote.
 
 
 
 
 
All written notices of revocation and other communications with respect to revocation of ERB proxies should be addressed to ERB as follows:  Charles T. Field, Senior Vice President and Chief Financial Officer, East River Bank, 4341 Ridge Avenue, Philadelphia, PA  19129.
 
 
 

5



Q:
 
What should I do if I receive more than one set of voting materials?
 
 
 
A:
 
Shareholders may receive more than one set of voting materials, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold such shares. If you are a holder of record of shares and your shares are registered in more than one name, you will receive more than one proxy card. In addition, if you are a holder of both DNB common stock and ERB common stock, you will receive one or more separate proxy cards or voting instruction cards for each company. Please complete, sign, date and return each proxy card and voting instruction card that you receive or otherwise follow the voting instructions set forth in this joint proxy statement/prospectus to ensure that you vote every share of DNB and/or ERB common stock that you own.
 
 
 
Q:
 
Do I have appraisal or dissenters' rights?
 
 
 
A:
 
DNB – No.  DNB shareholders are not entitled to appraisal or dissenters' rights.
 
 
 
 
 
ERB – Yes. Under Pennsylvania law, ERB shareholders have the right to dissent from the merger and receive a payment in cash for the "fair value" of their shares of ERB common stock as determined by an appraisal process. This value may be more or less than the value you would receive in the merger if you do not dissent. If you dissent, you will receive a cash payment for the value of your shares that will be fully taxable to you. Pennsylvania law requires dissenting shareholders to follow certain statutory procedures in order to perfect your dissenters' rights.  Please see "The Merger – Dissenters' Rights" beginning on page 76 and the Pennsylvania statutory provisions provided in Annex D.
 
 
 
Q:
 
When do you expect to complete the merger?
 
 
 
A:
 
DNB and ERB expect to complete the merger in early fourth quarter 2016. However, we cannot assure you when or if the merger will be completed. Among other things, we cannot complete the merger until we obtain the approvals being sought from both DNB and ERB shareholders at the special meetings and until we obtain certain regulatory approvals.
 
 
 
Q:
 
What happens if the merger is not completed?
 
 
 
A:
 
If the merger is not completed, holders of ERB common stock will not receive any consideration for their shares in connection with the merger, and ERB will remain an independent, privately-held company.
 
 
 
 
 
If the merger is not completed, DNB will remain an independent public company and its common stock will continue to be listed and traded on the NASDAQ.
 
 
 
 
 
If the merger agreement is terminated in certain circumstances, a termination fee may be required to be paid by ERB.  Please see "The Merger Agreement – Termination Fee" beginning on page 91 for a complete discussion of the circumstances under which a termination fee will be required to be paid.
 
 
 
Q:
 
If I am an ERB shareholder, should I send my ERB share certificates with my proxy card or before the ERB special meeting?
 
 
 
A:
 
No. You should NOT send your ERB share certificates with your proxy card or at any time prior to the ERB special meeting.  DNB, through its appointed exchange agent, will send ERB shareholders instructions for exchanging ERB share certificates for the merger consideration.
 
 
 
Q:
 
Whom may I contact if I cannot locate my ERB share certificate(s)?
 
 
 
A:
 
If you are unable to locate your original ERB share certificate(s), you should contact Charles T. Field, Senior Vice President and Chief Financial Officer, East River Bank, 4341 Ridge Avenue, Philadelphia, PA  19129.
 
 
 
Q:
 
Whom should I call with questions about the special meetings, the proposals or the merger?
 
 
 
A:
 
DNB – DNB shareholders may contact Gerald F. Sopp, DNB's Executive Vice President and Chief Financial Officer, at (484) 359-3138 or GSOPP@DNBFIRST.COM with any questions about the DNB special meeting, the share issuance proposal or related matters.
 
 
 
 
 
ERB – ERB shareholders may contact Charles T. Field, ERB's Senior Vice President and Chief Financial Officer, at (267) 295-6420 or cfield@eastriverbank.com with any questions about the ERB special meeting, the merger or related matters.
6

SUMMARY

This summary highlights selected information from this joint proxy statement/prospectus. It may not contain all the information that is important to you. You should read carefully the entire document, including the Annexes, and the additional documents we refer you to in order to fully understand the merger agreement and the transactions contemplated thereby, including the merger, the issuance of shares of DNB common stock in connection with the merger, the proposals to be considered and voted on by DNB and ERB shareholders, and the voting procedures for the DNB and ERB special meetings of shareholders. See "Where You Can Find More Information" on page 181. Each item included in this summary refers to the page of this joint proxy statement/prospectus where that subject is discussed in more detail.

The Parties to the Merger (pages 113 and 150)

DNB Financial Corporation
4 Brandywine Avenue
Downingtown, PA 19335
(610) 269-1040

DNB Financial Corporation, or DNB, is a bank holding company whose bank subsidiary, DNB First, National Association, or DNB First, is a community bank headquartered in Downingtown, Pennsylvania with 12 locations. Founded in 1860, DNB First, in addition to providing a broad array of consumer and business banking products, offers brokerage and insurance services through DNB Investments & Insurance and investment management services through DNB Investment Management & Trust.

As of March 31, 2016, DNB and its subsidiaries had consolidated total assets of $761.4 million, deposits of $637.1 million and shareholders' equity of $58.2 million. As of March 31, 2016, DNB and its subsidiaries had 120 full-time and 8 part-time employees.

DNB's common stock trades on the NASDAQ Capital Market under the symbol "DNBF."

East River Bank
4341 Ridge Avenue
Philadelphia, PA 19129
(267)295-6420

East River Bank, or ERB, is a Pennsylvania-chartered savings bank headquartered in the East Falls neighborhood of Philadelphia, Pennsylvania. Founded in 2006, East River Bank provides personal and business lending and deposit services through three locations in Philadelphia, Pennsylvania.

As of March 31, 2016, ERB had total assets of $311.4 million, deposits of $228.9 million and shareholders' equity of $31.0 million. As of March 31, 2016, ERB had 42 full-time and nine part-time employees.

DNB and ERB Have Agreed to Merge (page 79)

On April 4, 2016, DNB and ERB entered into an Agreement and Plan of Merger, or the merger agreement, under which ERB will merge with and into DNB First, with DNB First surviving the merger. Upon completion of the merger, the separate existence of ERB will terminate and ERB common stock will no longer be outstanding. Completion of the merger is subject to a variety of conditions, including approval by DNB shareholders of the issuance of shares of common stock to shareholders of ERB in connection with the merger and adoption and approval of the merger agreement by ERB shareholders. We currently expect to complete the merger in early fourth quarter 2016. The merger agreement is attached to this joint proxy statement/prospectus as Annex A and is incorporated by reference herein.

In the Merger, ERB Shareholders Will Have a Right to Receive Shares of DNB Common Stock, Cash or a Combination of Shares of DNB Common Stock and Cash (page 79)

Under the terms of the merger agreement, ERB shareholders will be entitled to elect to receive, for each share of ERB common stock they own, 0.6562 of a share of DNB common stock or $18.65 in cash. The election of shares of DNB common stock or cash by ERB shareholders will be subject to proration such that 2,085,662 shares of ERB common stock, or approximately 85.3% of the currently outstanding ERB shares, will be exchanged for shares of DNB common stock, with the remaining ERB shares to be exchanged for cash. If more ERB shareholders make valid elections to receive either shares of DNB common stock or cash than is available as either stock or cash consideration pursuant to the terms of the merger agreement, ERB shareholders electing the over-subscribed form of merger consideration will have the over-subscribed consideration proportionately reduced and substituted with consideration in the other form.
 
 
 
 
7

 
DNB will not issue any fractional shares of its common stock in the merger. ERB shareholders who would otherwise be entitled to a fractional share of DNB common stock will instead receive an amount in cash (rounded to the nearest cent), determined by multiplying (1) the fraction of a share (after taking into account all shares of ERB common stock held by such shareholder at the effective time of the merger and rounded to the nearest thousandth when expressed in decimal form) of DNB common stock to which such holder would otherwise have been entitled to receive, and (2) the quotient obtained by dividing (x) the per share cash consideration by (y) the exchange ratio (subject to adjustment under certain circumstances). For purposes of determining any fractional share interest, all shares of ERB common stock owned by an ERB shareholder shall be combined so as to calculate the maximum number of whole shares of DNB common stock issuable to such ERB shareholder pursuant to the merger agreement.
 
What Holders of ERB Stock Options Will Receive (page 73)
 
Under the terms of the merger agreement, upon completion of the merger, the outstanding and unexercised stock options to acquire ERB common stock, will be exchanged for a cash payment equal to the difference between the per share cash consideration payable by DNB to ERB shareholders pursuant to the merger agreement and the corresponding exercise price of each such outstanding option.
 
In Order To Make a Valid Election, ERB Shareholders Must Properly Complete and Deliver the Election Form (page 80)
 
ERB shareholders will receive separately an election form, including transmittal materials, with instructions for making cash and stock elections. ERB shareholders must properly complete and deliver the election form to the exchange agent. The election form is not the same as the ERB proxy card – it is a separate form.

The Merger Is Intended to Be Tax-Free to ERB Shareholders as to any Shares of DNB Common Stock They Receive (page 92)
 
The merger is intended to be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, which we refer to as the Internal Revenue Code. One of the conditions to the respective obligations of DNB and to complete the merger is that each of DNB and ERB receives an opinion from its respective legal counsel to that effect.
   
The federal income tax consequences of the merger to ERB shareholders will depend on the merger consideration received – cash, shares of DNB common stock, or a combination thereof. It is expected that ERB shareholders exchanging shares of ERB common stock solely for shares of DNB common stock will not recognize gain or loss for U.S. federal income tax purposes upon the exchange of their shares of ERB common stock for shares of DNB common stock pursuant to the merger, except with respect to any cash received by an ERB shareholder in exchange for shares of common stock or in lieu of fractional shares of DNB common stock. ERB shareholders exchanging shares of ERB common stock solely for cash consideration generally will recognize gain or loss for federal income tax purposes in an amount equal to the difference between the cash received and the particular shareholder's adjusted tax basis in the shares of ERB common stock. ERB shareholders exchanging shares of ERB common stock for a combination of cash and shares of DNB common stock generally will not recognize loss but will recognize gain, if any, equal to the lesser of (1) the excess, if any, of the sum of the cash received and the fair market value of the DNB common stock received pursuant to the merger over that holder's adjusted tax basis in his or her shares of ERB common stock surrendered, and (2) the amount of cash consideration received by that holder pursuant to the merger.
 
This tax treatment may not apply to all ERB shareholders. Determining the actual tax consequences of the merger to ERB shareholders can be complicated. ERB shareholders should consult their own tax advisor for a full understanding of the merger's tax consequences that are particular to them.
 
Comparative Market Prices of Securities (page 169)
 
DNB's common stock trades on the NASDAQ Capital Market under the symbol "DNBF." ERB common stock is not listed on any national securities exchange or quoted on any interdealer quotation system. The table below presents the closing prices of DNB common stock on April 1, 2016, the last trading day prior to the public announcement of the merger, and on August 2, 2016, the last practicable trading day before the distribution of this joint proxy statement/prospectus, as well as the book value per share of ERB common stock on those dates. The table also presents the implied value for each share of ERB common stock converted into shares of DNB common stock on those dates, as determined by multiplying the closing price of DNB common stock on those dates by the exchange ratio of 0.6562. 

 
 
DNB
Common Stock
   
ERB Common Stock
(Book Value Per Share)
   
Implied Value of One
Share of ERB Common Stock
 
At April 1, 2016
 
$
29.50
   
$
12.67
(1) 
 
$
19.36
 
At August 2, 2016
 
$
26.00
   
$
12.82
(2) 
 
$
17.06
 

(1) Book Value Per Share at March 31, 2016.
(2) Book Value Per Share at June 30, 2016.
 
 
 
8

 
For each share of ERB common stock, ERB shareholders will receive 0.6562 of a share of DNB common stock. The market value of DNB common stock and the book value of ERB common stock may fluctuate prior to the merger. ERB shareholders should obtain current market quotations for DNB common stock. You can get these quotations from the Internet or by calling your broker.

The Merger Will Be Accounted for as a "Business Combination" (page 91)

The merger will be treated as a "business combination" using the acquisition method of accounting with DNB treated as the acquirer under United States generally accepted accounting principles, or GAAP.

Special Meeting of DNB Shareholders (page 44)

DNB plans to hold the DNB special meeting on Wednesday, September 14, 2016, at 10:00 a.m., local time, at the Downingtown Country Club, 85 Country Club Drive, Downingtown, Pennsylvania 19335. At the DNB special meeting, DNB shareholders will be asked to approve the issuance of shares of DNB common stock to ERB shareholders in connection with the merger, to approve a proposal to allow the DNB special meeting to be adjourned, if necessary or appropriate, to permit the solicitation of additional proxies in favor of the issuance of the shares of DNB common stock in connection with the merger, and to transact such other business as may properly come before the DNB special meeting and any adjournments or postponements thereof.

DNB shareholders may vote at the DNB special meeting if they owned DNB common stock at the close of business on
July 28, 2016, which is the record date for the DNB special meeting. As of that date, there were approximately 2,853,434 shares of DNB common stock outstanding and entitled to vote. DNB shareholders are entitled to cast one vote for each share of DNB common stock owned on the record date.

As of the record date for the DNB special meeting, DNB's directors and officers and their affiliates held 543,059 shares of DNB common stock.

As of the record date for the DNB special meeting, ERB, its subsidiaries, and its directors and officers and their affiliates did not hold any shares of DNB common stock (other than shares held as fiduciary, custodian or agent).

Special Meeting of ERB Shareholders (page 47)

ERB plans to hold the ERB special meeting on Wednesday, September 14, 2016, at 9:00 a.m., local time, at the Chubb Hotel & Conference Center, 800 Ridge Pike, Lafayette Hill, Pennsylvania 19444. At the ERB special meeting, ERB shareholders will be asked to approve and adopt the merger agreement and the transactions contemplated thereby, to approve a proposal to allow the ERB special meeting to be adjourned, if necessary or appropriate, to permit the solicitation of additional proxies in favor of approval and adoption of the merger agreement, and to transact such other business as may properly come before the ERB special meeting and any adjournments or postponements thereof.

ERB shareholders may vote at the ERB special meeting if they owned ERB common stock at the close of business on
July 28, 2016, which is the record date for the ERB special meeting. As of that date, there were 2,444,911 shares of ERB common stock outstanding and entitled to vote. ERB shareholders are entitled to cast one vote for each share of ERB common stock owned on the record date.

As of the record date for the ERB special meeting, ERB's directors and officers and their affiliates held 543,702 shares of ERB common stock.

As of the record date for the ERB special meeting, DNB, its subsidiaries, and its directors and officers and their affiliates did not own or hold any shares of ERB common stock (other than shares held as fiduciary, custodian or agent).

DNB's Board of Directors Recommends That DNB Shareholders Vote "FOR" Approval of the Issuance of Share of DNB Common Stock In Connection With the Merger (page 52)

DNB's board of directors has approved the merger agreement and the transactions contemplated thereby, including the merger, and recommends that DNB shareholders vote "FOR" approval of the issuance of shares of DNB common stock to holders of ERB common stock as provided in the merger agreement, and "FOR" the proposal to allow the DNB special meeting to be adjourned, if necessary or appropriate, to permit the solicitation of additional proxies in favor of the issuance of the shares of DNB common stock in connection with the merger.
 
 

9

 
Opinion of DNB's Financial Advisor (page 54)

Ambassador Financial Group, Inc., or Ambassador, DNB's financial advisor, delivered its opinion, dated April 4, 2016, to DNB's board of directors to the effect that, as of the date of the opinion and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Ambassador as set forth in such opinion , DNB's acquisition of all of the outstanding and common stock of ERB, in exchange for DNB's common stock, which is fairly valued, and cash, was fair to the holders of DNB common stock from a financial point of view.

The full text of the written opinion of Ambassador, dated April 4, 2016, which sets forth the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Ambassador in connection with its opinion, is attached as Annex B to this joint proxy statement/prospectus. Ambassador's opinion was for the information of, and directed to, DNB's board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The Ambassador opinion is not a recommendation as to how any holder of DNB's common stock should vote with respect to the proposal to approve the issuance of shares of DNB common stock in connection with merger or any other matter. The Ambassador opinion does not reflect any developments that may have occurred or may occur after the date of its opinion and prior to the completion of the merger. DNB does not expect that it will request an updated opinion from Ambassador. Ambassador will receive a fee for its services, including rendering the fairness opinion, in connection with the merger.

ERB's Board of Directors Recommends That ERB Shareholders Vote "FOR" Approval and Adoption of the Merger Agreement and the Transactions Contemplated Thereby (page 62)

ERB's board of directors has approved the merger agreement and the transactions contemplated thereby, including the merger, and unanimously recommends that ERB shareholders vote "FOR" approval and adoption of the merger agreement and the transactions contemplated thereby, including the merger, and "FOR" the proposal to allow the ERB special meeting to be adjourned, if necessary or appropriate, to permit the solicitation of additional proxies in favor of the approval and adoption of the merger agreement.

Opinion of ERB's Financial Advisor (page 64)

Griffin Financial Group, LLC, or Griffin, ERB's financial advisor, delivered its opinion, dated April 4, 2016, to ERB's board of directors to the effect that, as of the date of the opinion and subject to factors, qualifications, limitations and assumptions set forth in the opinion, the merger consideration in connection with the proposed merger was fair, from a financial point of view, to the common equity shareholders of ERB.

The full text of the written opinion of Griffin, dated April 4, 2016, which sets forth the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Griffin in connection with its opinion, is attached as Annex C to this joint proxy statement/prospectus. Griffin's opinion was for the information of, and directed to, ERB's board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The Griffin opinion is not a recommendation as to how any holder of ERB's common stock should vote with respect to the proposal to approve and adopt the merger agreement or any other matter. The Griffin opinion does not reflect any developments that may have occurred or may occur after the date of its opinion and prior to the completion of the merger. ERB does not expect that it will request an updated opinion from Griffin. Griffin will receive a fee for its services, including rendering the fairness opinion, in connection with the merger.

ERB's Directors and Executive Officers May Have Interests in the Merger that Differ From Your Interests (page 72)

In considering the information contained in this joint proxy statement/prospectus, ERB shareholders should be aware that ERB's directors and executive officers have interests in the merger and have arrangements that are different from, or in addition to, those of ERB's shareholders. In particular, the terms of the merger agreement provide that John F. McGill, Jr., who currently serves as chairman of ERB, will be appointed as a director of DNB and will serve as Vice Chairman. Charles A. Murray and Daniel O'Donnell, who currently serve as directors of ERB, also will be appointed as DNB directors pursuant to terms of the merger agreement that require DNB to appoint two other directors who currently serve as ERB directors. Christopher P. McGill, who currently serves as president and chief executive officer of ERB and is a member of ERB's board of directors, will become DNB's executive vice president and chief business development officer pursuant to an employment agreement that will become effective upon completion of the merger. Jerry L. Cotlov, who currently serves as executive vice president and chief lending officer of ERB and is a member of ERB's board of directors, will assume the position of DNB senior vice president and assistant chief commercial lending officer pursuant to an employment agreement that will become effective upon completion of the merger. In addition, Messrs. Christopher P. McGill, Cotlov and Charles T. Field, the Senior Vice President and Chief Financial Officer of ERB, will receive lump sum cash payments upon completion of the merger pursuant to their current employment and change in control agreements with ERB, and cash payments will also be made at closing in cancellation of all in-the-money stock options which remain outstanding immediately prior to completion of the merger, whether or not vested. DNB has also agreed to continue to indemnify the current directors and officers of ERB pursuant to the terms of the merger agreement and to provide such persons with continued director's and officer's liability insurance coverage. These interests and arrangements may create potential conflicts of interest and cause these persons to view the proposed merger transaction differently than you may view it as a shareholder.
 
 
10

 
ERB's board of directors was aware of these interests and took them into account in its decision to declare advisable the merger agreement and the transactions contemplated thereby, including the merger and recommend that ERB shareholders approve and adopt the merger agreement.

Ownership of ERB Common Stock Following the Merger (page 29)

It is currently expected that former shareholders of ERB as a group will receive shares in the merger constituting approximately 32% of the outstanding shares of DNB common stock immediately after completion of the merger. As a result, current shareholders of DNB as a group will own approximately 68% of the outstanding shares of DNB common stock immediately after the completion of the merger.

ERB Shareholders Have Dissenters' Rights in the Merger (page 76)

Under Pennsylvania law, record holders of ERB shares have the right to dissent from the merger and receive a payment in cash for the "fair value" of their shares of ERB common stock as determined by an appraisal process. To exercise those dissenters' rights, ERB shareholders must follow exactly the procedures specified under Pennsylvania law. These procedures are summarized in this joint proxy statement/prospectus. In addition, the text of the applicable provisions of Pennsylvania law is attached as Annex D to this joint proxy statement/prospectus. Failure to strictly comply with these provisions may result in the loss of dissenters' rights. The value determined in the appraisal process may be more or less than the value an ERB shareholder would receive in the merger if the shareholder did not dissent.

DNB and ERB Have Agreed When and How ERB Can Consider Third-Party Acquisition Proposals (page 87)

DNB and ERB have agreed that ERB will not initiate, solicit, induce or encourage proposals from third parties regarding certain acquisitions of ERB, its shares, or its businesses, take any action or facilitate the making of an acquisition proposal, or engage in related discussions, negotiations or enter into any related agreements. However, ERB may (1) provide information in response to a request from a person who makes an unsolicited acquisition proposal, subject to such person entering into a confidentiality agreement that is no less favorable to ERB than its confidentiality agreement with DNB, and (2) engage or participate in discussions or negotiations with a person who makes such an unsolicited acquisition proposal; if, but only if, (A) ERB has received a bona fide unsolicited written acquisition proposal that did not result from a breach of the merger agreement, (B) prior to taking any such action, ERB's board of directors determines, in good faith, after consultation with its outside legal and financial advisors, that the acquisition proposal constitutes a superior proposal compared to the transactions contemplated by the merger agreement, (C) ERB has provided DNB with at least two (2) business days prior notice of such determination, (D) prior to furnishing or affording access to any information or data with respect to ERB or any of its subsidiaries or otherwise relating to the unsolicited acquisition proposal, ERB receives a confidentiality agreement with terms no less favorable to ERB than those contained in the confidentiality agreement between DNB and ERB, and (E) the board of directors of ERB determines in good faith, after consultation with and having considered the advice of its outside legal counsel, that the failure to take any such actions would be reasonably likely to violate its fiduciary duties under applicable laws.

Additionally, prior to the approval of the merger agreement by ERB's shareholders, upon the determination by ERB's board of directors that an unsolicited acquisition proposal constitutes a superior proposal compared to the transactions contemplated by the merger agreement, the board of directors of ERB may change its recommendation in favor of the merger agreement (but not terminate the merger agreement) if, prior to changing its recommendation, (1) ERB's board of directors determines, in good faith, after consultation with its outside legal and financial advisors, that failure to change its recommendation would be reasonably likely to be inconsistent with its fiduciary duties to ERB's shareholders, (2) ERB provides DNB with notice that ERB's board of directors intends to or may change its recommendation and provides an opportunity for DNB to make an improved proposal, and (3) ERB's board of directors determines, in good faith, after consultation with its outside legal and financial advisors, that the acquisition proposal constitutes a superior proposal compared to any such improved proposal by DNB.

Unless the merger agreement is terminated before the ERB special meeting, ERB is required to submit the merger agreement to its shareholders.

Merger Requires the Approval of DNB Shareholders of the Issuance of Shares of DNB Common Stock and the Approval and Adoption of the Merger Agreement by ERB Shareholders (page 44)

Approval of the issuance of the shares of DNB common stock in connection with the merger requires the affirmative vote of the holders of a majority of the votes cast by holders of DNB common stock entitled to vote at the DNB special meeting.
 
 

11

 
Approval and adoption of the merger agreement requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of ERB common stock entitled to vote at the ERB special meeting.

DNB's board of directors has fixed the close of business on July 28, 2016 as the record date for determining the DNB shareholders entitled to receive notice of and to vote at the DNB special meeting. DNB is calling its special meeting of shareholders to consider and vote on the proposal to approve the issuance of shares of DNB common stock in connection with the merger. In addition, DNB shareholders will be voting on a proposal to allow the DNB special meeting to be adjourned, if necessary or appropriate, to allow for the solicitation of additional proxies in favor of the issuance of the shares of DNB common stock in connection with the merger.

As of the record date for the DNB special meeting, DNB's directors and executive officers beneficially owned approximately 543,059 shares, representing approximately 18.51%, of the shares entitled to vote at the DNB special meeting.

ERB's board of directors has fixed the close of business on July 28, 2016 as the record date for determining the ERB shareholders entitled to receive notice of and to vote at the ERB special meeting. ERB is calling its special meeting of shareholders to consider and vote on the proposal to approve and adopt the merger agreement and the transactions contemplated thereby. In addition, ERB shareholders are being asked to approve a proposal to allow the ERB special meeting to be adjourned, if necessary or appropriate, to allow for the solicitation of additional proxies in favor of the approval and adoption of the merger agreement.

As of the record date for the ERB special meeting, ERB's directors and executive officers held approximately 543,702 shares, representing approximately 22.2%, of the shares entitled to vote at the ERB special meeting. In connection with ERB's entry into the merger agreement, ERB's directors and executive officers entered into voting agreements that require, among other things, the directors and executive officers to vote in favor of the approval and adoption of the merger agreement at the ERB special meeting.

Conditions That Must Be Satisfied or Waived for the Merger to Occur (page 89)

Currently, DNB and ERB expect to complete the merger in early fourth quarter 2016. As more fully described elsewhere in this joint proxy statement/prospectus and in the merger agreement, the completion of the merger depends on a number of conditions being satisfied or, where legally permissible, waived. These conditions include, among others:
 
the approval by the requisite vote of DNB shareholders of the issuance of shares of DNB common stock in connection with the merger;
   
the approval and adoption of the merger agreement by the requisite vote of ERB shareholders;
   
the receipt of all regulatory consents and approvals required to consummate the transactions contemplated by the merger agreement, without conditions (excluding standard conditions that are normally imposed in bank merger transactions) that would, in the good faith reasonable judgment of the DNB board of directors, materially and adversely affect the business, operations, financial condition, property or assets of the combined enterprise of DNB and ERB or materially impair the value of ERB to DNB;
   
the receipt by each of DNB and ERB of a legal opinion with respect to certain United States federal income tax consequences of the merger;
             
the absence of any law, statute, rule, regulation, order, decree, injunction or other order by any court or other governmental entity, which enjoins or prohibits completion of the transactions contemplated by the merger agreement;

the effectiveness of the registration statement of which this joint proxy statement/prospectus is a part with respect to the DNB common stock to be issued in connection with the merger under the Securities Act and the absence of any stop order or proceedings initiated or threatened by the SEC or any state securities commissioner (with respect to any applicable state securities laws) for that purpose;
             
the authorization for listing on the NASDAQ of the shares of DNB common stock to be issued in connection with the merger;
   
the exercise of dissenters' rights by holders of ERB common stock not exceeding 15% of the issued and outstanding shares of ERB;

the absence of any change that individually or in the aggregate has a material adverse effect with respect to DNB or ERB;
 
 
 
12

 
 
the truth and correctness of the representations and warranties of each other party in the merger agreement, subject to the materiality standards provided in the merger agreement; and
 
 
 
 
the performance by each party in all material respects of their obligations under the merger agreement and the receipt by each party of certificates from the other party to that effect.

We cannot be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.

Termination of the Merger Agreement (page 90)

The merger agreement can be terminated at any time prior to completion by mutual consent, if authorized by each of the DNB and ERB boards of directors, or by either party individually, in the following circumstances:

 
if the other party breaches the merger agreement in a way that would entitle the party seeking to terminate the agreement not to consummate the merger, unless the breach is capable of being cured by November 30, 2016 (the termination date of the merger agreement), and is actually cured within 30 days of notice of the breach;
 
 
 
 
if the merger has not been completed by the termination date of November 30, 2016, unless the failure to complete the merger by that date is due to the breach of the merger agreement by the party seeking to terminate the merger agreement;
 
 
 
 
if DNB's shareholders fail to approve the issuance of shares of DNB common stock in connection with the merger at the DNB special meeting;
 
 
 
 
if ERB's shareholders fail to approve and adopt the merger agreement at the ERB special meeting; or
 
 
 
 
if there is any final, non-appealable order permanently enjoining or prohibiting the completion of the merger or any consent, registration, approval, permit or authorization is denied such that the regulatory approval condition to the merger cannot be satisfied as of the closing date.

In addition, DNB may terminate the merger agreement if ERB has received a "superior proposal" and ERB's board of directors has (1) entered into an acquisition agreement with respect to the superior proposal or (2) withdrawn its recommendation regarding the merger, failed to make its recommendation or modified or qualified its recommendation in a manner adverse to DNB. DNB also may also terminate the merger agreement if ERB fails to substantially comply with its obligations with respect to consideration and action upon alternative acquisition proposals.

ERB also may terminate the merger agreement if (1) ERB has received an acquisition proposal that ERB's board of directors determines to be a "superior proposal" and ERB's board of directors has made a determination to accept such superior proposal or (2) the average closing price of DNB common stock is less than the product of 0.800 and $29.16 during the three day period following the 10th calendar day immediately prior to the effective time of the merger and DNB's common stock underperforms the NASDAQ Bank Index by more than 20%, unless DNB elects to make a compensating adjustment to the exchange ratio.

If the merger agreement is terminated, it will become void, and there will be no liability on the part of DNB or ERB, except that (1) in the event of willful breach of the merger agreement, the breaching party will remain liable for any damages, costs and expenses, including without limitation, reasonable attorneys' fees incurred by the non-breaching party in connection with the enforcement of its rights under the merger agreement, (2) designated provisions of the merger agreement, including the payment of fees and expenses and the confidential treatment of information, will survive the termination and (3) under certain circumstances, a termination of the merger agreement will obligate ERB to pay DNB a termination fee and reimburse DNB for all of DNB's fees and expenses incurred in connection with the merger.

Termination Fee (page 91)

ERB will be obligated to pay DNB a termination fee of $1,390,000 and reimburse DNB for all of DNB's fees and expenses incurred in connection with the merger, including attorney, accountant and financial advisor fees, under the following circumstances:

 
if the merger agreement is terminated by DNB because ERB has received a "superior proposal" and ERB's board of directors has (1) entered into an acquisition agreement with respect to the superior proposal or (2) withdrawn its recommendation regarding the merger, failed to make its recommendation or modified or qualified its recommendation in a manner adverse to DNB;
 
 
13

 
 
if the merger agreement is terminated by ERB because ERB has received a "superior proposal" and ERB's board of directors has made a determination to accept the superior proposal; or
 
 
 
 
if ERB enters into a definitive agreement relating to an acquisition proposal within 12 months after the occurrence of any of the following: (1) the termination of the merger agreement by DNB due to ERB's willful breach, subject to the materiality standards provided in the merger agreement, of its representations, warranties, covenants or agreements under the merger agreement, or (2) the failure of ERB's shareholders to approve and adopt the merger agreement after the public disclosure or public awareness of an acquisition proposal.
 
Regulatory Approvals Required for the Merger (page 72)
 
Each of DNB and ERB has agreed to cooperate with the other and use all reasonable efforts to obtain all regulatory approvals required to complete the transactions contemplated by the merger agreement, including the merger and the bank merger. These approvals include approval from the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency. DNB and ERB have completed, or will complete, the filing of applications and notifications to obtain the required regulatory approvals. Although DNB and ERB do not know of any reason why these regulatory approvals cannot be obtained in a timely manner, DNB and ERB cannot be certain when or if they will be obtained.

The Rights of ERB Shareholders Following the Merger Will Be Different (page 175)

The rights of DNB shareholders are governed by Pennsylvania law and by DNB's amended and restated articles of incorporation and amended and restated bylaws. The rights of ERB shareholders are governed by Pennsylvania law, and by ERB's articles of incorporation and bylaws. Upon the completion of the merger, the rights of ERB shareholders will be governed by Pennsylvania law, DNB's amended and restated articles of incorporation and amended and restated bylaws. Certain provisions of DNB's amended and restated articles of incorporation and amended and restated bylaws provide DNB shareholders with different rights than provided by ERB's articles of incorporation and bylaws. In addition, certain provisions of the Pennsylvania Business Corporation Law, or PBCL, that are applicable to a "registered corporation" such as DNB are not applicable to ERB.

Risk Factors (page 25)

You should consider all the information contained in or incorporated by reference into this joint proxy statement/prospectus in deciding how to vote for the proposals presented in this joint proxy statement/prospectus. In particular, you should consider the factors described under "Risk Factors."

Recent DNB Developments

On July 21, 2016, DNB reported its unaudited preliminary consolidated financial results as of and for the quarter and six months ended June 30, 2016. DNB's second quarter results, as reported, included the following items:
 
 
 
Net income available to common stockholders was $1.1 million for the three months ended June 30, 2016 which was a $118,000, or 9.6% decrease from $1.2 million for the same period in 2015. Results for the three months ended June 30, 2016 included merger-related costs of $275,000 ($235,000 net of taxes) associated with the merger.
 
 
 
Net interest income for the three months ended June 30, 2016 was $5.5 million, an increase of $19,000, or .3%, from $5.5 million for the same period in 2015.
 
 
 
The net interest margin of 3.08% for the three months ended June 30, 2016 was a three basis point decline from 3.11% for the same period in 2015.
 
 
 
Non-interest income for the three months ended June 30, 2016 increased $49,000, to $1.4 million, as compared to $1.3 million for the same period in 2015.
 
 
 
Non-interest expense for the three months ended June 30, 2016 increased $448,000, to $5.2 million, as compared to $4.7 million for the same period in 2015. Non-interest expense for the three months ended June 30, 2016 included merger-related costs of $275,000 associated with the merger.
 
 
 
For the three months ended June 30, 2016, DNB provided $200,000 to its allowance for credit losses, as compared to a $415,000 provision for credit losses for the same period in 2015.
 
 
 
Total loans of $494.4 million as of June 30, 2016, which was a $12.7 million, or 2.6%, increase from December 31, 2015.
 
14

 
 
The allowance for credit losses as of June 30, 2016 was $5.2 million, or 1.06% of total loans, as compared to $4.9 million, or 1.02% of total loans, as of December 31, 2015.
 
 
 
Total assets as of June 30, 2016 were $764.2 million, an increase of $15.4 million from December 31, 2015.
 
 
 
Deposits of $641.8 million, as of June 30, 2016, which was a $35.6 million increase from December 31, 2015.
 
 
 
The capital ratios for DNB First and DNB at June 30, 2016 were at levels above the regulatory minimum to be considered "well capitalized."

The foregoing is only a summary and is not intended to be a comprehensive statement of DNB's results for the quarter and six months ended June 30, 2016. Additional details about DNB's results for the quarter and six months ended June 30, 2016 can be found in DNB's Current Report on Form 8-K furnished to the SEC on July 21, 2016.  As of the date hereof, DNB has not filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.  Accordingly, DNB's results for the quarter and six months ended June 30, 2016 are subject to completion of DNB's closing and review procedures for the quarter, which may cause changes in the results DNB reports in its Form 10-Q from these preliminary results. These results are not necessarily indicative of the results that may be expected for any future period. You should read this information in conjunction with DNB's "Management's Discussion and Analysis of Financial Condition and Results of Operations" and financial statements and related notes to those statements, which are included in this joint proxy statement/prospectus.

Recent ERB Developments

ERB's results for the second quarter of 2016 included the following items:

 
 
Net income of $348,000 for the three months ended June 30, 2016 which was a $198,000, or 36.3%, decrease from $546,000 for the same period in 2015.
 
 
 
Net interest income for the three months ended June 30, 2016 was $3.2 million, an increase of $472,000, or 17.2%, from $2.7 million for the same period in 2015.
 
 
 
Non-interest income for the three months ended June 30, 2016 was $137,000 as compared $140,000 for the same period
in 2015.
 
 
 
Non-interest expense for the three months ended June 30, 2016 increased $402,000, to $2.3 million, as compared to
$1.9 million for the same period in 2015.
 
 
 
The provision for loan losses was $267,000 for the three months ended June 30, 2016, an increase of $163,000, or 156%, as compared to a $104,000 for the same period in 2015.
 
 
 
Total loans were $307.9 million as of June 30, 2016 which was a $24.7 million, or 8.7%, increase from December 31, 2015.
 
 
 
ERB's allowance for loan losses as of June 30, 2016 was $3.8 million, or 1.25% of total loans as compared to $3.4 million, or 1.22% of total loans, as of December 31, 2015.

 
 
Total assets as of June 30, 2016 were $320.4 million, an increase of $9.7 million from December 31, 2015.
 
 
 
Deposits of $225.6 million, as of June 30, 2016, which was a $4.6 million decrease from December 31, 2015.
 
 
 
Total borrowings of $58.8 million, as of June 30, 2016, which was a $13.0 million increase from December 31, 2015.
 
 
 
The capital ratios for ERB at June 30, 2016 continued to be at levels above the regulatory minimum to be considered "well capitalized."
  
ERB's results at and for the three months ended June 30, 2016 are not necessarily the results to be achieved by ERB for all of 2016 or for any other period. You should read the above information for ERB in conjunction with "Information About ERB – ERB's Management's Discussion and Analysis of Financial Condition and Results of Operations" and ERB's financial statements and related notes to those statements, which are included elsewhere in this joint proxy statement/prospectus.
 
 
15

 
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

Presented below for DNB and ERB are comparative historical and unaudited pro forma equivalent per share financial data as of and for the year ended December 31, 2015, and as of and for the three months ended March 31, 2016. The information presented below should be read together with the historical consolidated financial statements of DNB and ERB, including the related notes. The DNB financial statements are included in this joint proxy statement/prospectus beginning at page F-1. The ERB financial statements are included in this joint proxy statement/prospectus beginning at page F-67.

The unaudited pro forma information gives effect to the merger as if the merger had been effective on December 31, 2015 or March 31, 2016 in the case of the book value data, and as if the merger had been effective as of January 1, 2015 and January 1, 2016 in the case of the earnings per share and the cash dividends data. The unaudited pro forma data combines the historical results of ERB into DNB's consolidated financial statements. While certain adjustments were made for the estimated impact of fair value adjustments and other acquisition-related activity, they are not indicative of what could have occurred had the acquisition taken place on January 1, 2015 or January 1, 2016.

The unaudited pro forma adjustments are based upon available information and certain assumptions that DNB and ERB management believe are reasonable. The unaudited pro forma data, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the impact of factors that may result as a consequence of the merger or consider any potential impacts of current market conditions or the merger on revenues, expense efficiencies or asset dispositions, among other factors, nor the impact of possible business model changes. As a result, unaudited pro forma data are presented for illustrative purposes only and do not represent an attempt to predict or suggest future results. Upon completion of the merger, the operating results of ERB will be reflected in the consolidated financial statements of DNB on a prospective basis.

 
DNB
Historical
 
ERB
Historical
 
Pro
Forma
Combined
 
Per
Equivalent
ERB
Share
 
For the quarter ended March 31, 2016:
       
Earnings Per Share
       
Basic earnings per share
 
$
0.55
   
$
0.22
   
$
0.58
   
$
0.38
 
Diluted earnings per share
   
0.54
     
0.22
     
0.58
     
0.38
 
Cash Dividends Per Share
 
$
0.07
   
$
0.00
   
$
0.07
   
$
0.05
 
Book Value per common share as of March 31, 2016
 
$
20.45
   
$
12.67
   
$
22.20
   
$
14.57
 

The pro forma combined book value per share of DNB is based upon the pro forma combined common shareholders' equity for DNB and ERB divided by the total pro forma common shares of the combined entity and reflects ERB shares at the exchange ratio of 0.6562.

 
DNB
Historical
 
ERB
Historical
 
Pro
Forma
Combined
 
Per
Equivalent
ERB
Share
 
For the year ended December 31, 2015:
       
Earnings Per Share
       
Basic earnings per share
 
$
1.82
   
$
0.92
   
$
1.88
   
$
1.23
 
Diluted earnings per share
   
1.79
     
0.91
     
1.84
     
1.21
 
Cash Dividends Per Share
 
$
0.28
   
$
0.00
   
$
0.28
   
$
0.18
 
Book Value per common share as of December 31, 2015
 
$
19.65
   
$
12.43
   
$
22.02
   
$
14.45
 

The pro forma combined book value per share of DNB is based upon the pro forma combined common shareholders' equity for DNB and ERB divided by the total pro forma common shares of the combined entity and reflects ERB shares at the exchange ratio of 0.6562.
 

 
16

 
SELECTED FINANCIAL AND OTHER DATA OF DNB

The following summary presents Selected Consolidated Financial Data of DNB as of and for the periods indicated. The financial data as of and for the years ended December 31, 2015, 2014, 2013, 2012 and 2011 has been derived from DNB's audited financial statements. The financial data as of and for the three months ended March 31, 2016 and 2015 has been derived from DNB's unaudited consolidated financial statements. The information as of and for the three months ended March 31, 2016 and 2015 is unaudited and reflects only normal recurring adjustments that are, in the opinion of DNB's management, necessary for a fair presentation of the result for the interim periods presented. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be achieved by DNB for all of 2016 or for any other period. 
 
 
 
Three Months ended
     
(Dollars in thousands, except
 
March 31, 2016
   
March 31, 2015
   
At or For the Year Ended December 31
 
share data)
 
(unaudited)
   
(unaudited)
   
2015
   
2014
   
2013
   
2012
   
2011
 
RESULTS OF OPERATIONS
                           
Interest income
 
$
6,105
   
$
5,996
   
$
24,478
   
$
23,596
   
$
23,212
   
$
25,729
   
$
26,174
 
Interest expense
   
650
     
606
     
2,712
     
2,311
     
2,888
     
3,755
     
4,644
 
Net interest income
   
5,455
     
5,390
     
21,766
     
21,285
     
20,324
     
21,974
     
21,530
 
Provision for credit losses
   
330
     
300
     
1,105
     
1,130
     
2,530
     
1,455
     
1,480
 
Non-interest income
   
2,329
     
1,335
     
5,009
     
4,958
     
4,795
     
4,528
     
3,666
 
Non-interest expense
   
5,418
     
4,824
     
19,029
     
18,632
     
17,450
     
17,702
     
16,748
 
Income before income taxes
   
2,036
     
1,601
     
6,641
     
6,481
     
5,139
     
7,345
     
6,968
 
Income tax expense
   
480
     
349
     
1,503
     
1,677
     
1,220
     
2,106
     
2,066
 
Net income
 
$
1,556
   
$
1,252
   
$
5,138
   
$
4,804
   
$
3,919
   
$
5,239
   
$
4,902
 
Preferred stock dividends & accretion of
                                                       
 discount
   
-
     
26
     
50
     
135
     
148
     
332
     
779
 
Net income available to common stockholders
 
$
1,556
   
$
1,226
   
$
5,088
   
$
4,669
   
$
3,771
   
$
4,907
   
$
4,123
 
 
                                                       
PER SHARE DATA
                                                       
Basic earnings
 
$
0.55
   
$
0.44
   
$
1.82
   
$
1.69
   
$
1.38
   
$
1.81
   
$
1.54
 
Diluted earnings
   
0.54
     
0.43
     
1.79
     
1.66
     
1.36
     
1.79
     
1.53
 
Cash dividends
   
0.07
     
0.07
     
0.28
     
0.28
     
0.28
     
0.20
     
0.12
 
Book value
   
20.45
     
18.91
     
19.65
     
18.33
     
16.55
     
16.08
     
14.14
 
Weighted average
                                                       
Common shares outstanding - basic
   
2,832,521
     
2,786,012
     
2,801,881
     
2,766,723
     
2,742,417
     
2,710,819
     
2,674,716
 
FINANCIAL CONDITION
                                                       
Total assets
 
$
761,440
   
$
748,440
   
$
748,818
   
$
723,330
   
$
661,473
   
$
639,568
   
$
607,099
 
Loans, gross
   
489,366
     
464,100
     
481,758
     
455,603
     
415,354
     
396,498
     
403,684
 
Allowance for credit losses
   
5,172
     
5,190
     
4,935
     
4,906
     
4,623
     
6,838
     
6,164
 
Deposits
   
637,055
     
627,261
     
606,275
     
605,083
     
558,747
     
530,424
     
497,545
 
Borrowings
   
61,144
     
59,840
     
81,909
     
49,005
     
39,674
     
46,864
     
53,647
 
Stockholders' equity
   
58,180
     
56,173
     
55,488
     
63,908
     
58,583
     
56,705
     
51,056
 
SELECTED RATIOS
                                                       
Return on average stockholders' equity
   
10.94
%
   
8.32
%
   
8.72
%
   
7.78
%
   
6.75
%
   
9.61
%
   
10.01
%
Return on average assets
   
0.84
     
0.71
     
0.69
     
0.71
     
0.60
     
0.84
     
0.80
 
Average equity to average assets
   
7.67
     
8.49
     
7.95
     
9.12
     
8.87
     
8.75
     
7.99
 
Loans to deposits
   
76.82
     
73.99
     
79.46
     
75.30
     
74.34
     
74.75
     
81.14
 
Dividend payout ratio
   
12.91
     
16.17
     
15.67
     
16.87
     
20.65
     
11.17
     
7.84
 
 
17

 
SELECTED FINANCIAL AND OTHER DATA OF ERB

The following summary presents Selected Consolidated Financial Data of ERB as of and for the periods indicated. The financial data as of and for the years ended December 31, 2015 and 2014 has been derived from ERB's audited financial statements included in this joint proxy statement/prospectus. The information as of and for the years ended December 31, 2013, 2012 and 2011 is derived from ERB's audited financial statements which are not included in this joint prospectus/joint proxy statement. The financial data as of and for the three months ended March 31, 2016 and 2015 has been derived from ERB's unaudited consolidated financial statements. The information at March 31, 2016 and for the three months ended March 31, 2016 and 2015 is unaudited and reflects only normal recurring adjustments that are, in the opinion of ERB's management, necessary for a fair presentation of the result for the interim periods presented. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be achieved by ERB for all of 2016 or for any other period.

   
Three Months Ended
March 31,
(Unaudited)
   
Year Ended December 31,
 
 
 
2016
   
2015
   
2015
   
2014
   
2013
   
2012
   
2011
 
 
 
(In thousands)
 
Operating Data:
                           
Interest income
 
$
3,683
   
$
3,270
   
$
13,507
   
$
12,008
   
$
11,600
   
$
11,458
   
$
11,543
 
Interest expense
   
669
     
588
     
2,506
     
2,053
     
2,307
     
2,560
     
3,140
 
Net interest income
   
3,014
     
2,682
     
11,001
     
9,955
     
9,293
     
8,898
     
8,403
 
Provision for loan losses
   
184
     
64
     
408
     
192
     
550
     
1,075
     
1,229
 
Net interest income after
provision for loan losses
   
2,830
     
2,618
     
10,593
     
9,763
     
8,743
     
7,823
     
7,174
 
Non-interest income
   
250
     
96
     
556
     
856
     
829
     
527
     
258
 
Non-interest expenses
   
2,188
     
1,967
     
7,774
     
7,778
     
7,008
     
6,539
     
5,910
 
Income tax expense
   
355
     
259
     
1,162
     
986
     
877
     
622
     
572
 
Net income
 
$
537
   
$
488
   
$
2,213
   
$
1,855
   
$
1,687
   
$
1,189
   
$
950
 

 
 
At
March 31,
(Unaudited)
   
At December 31,
 
 
 
2016
   
2015
   
2014
   
2013
   
2012
   
2011
 
 
 
(In thousands)
 
Balance Sheet Data:
                       
Total assets
 
$
311,426
   
$
310,716
   
$
271,372
   
$
247,598
   
$
237,537
   
$
222,892
 
Cash and cash equivalents
   
12,344
     
18,727
     
8,876
     
10,968
     
11,992
     
13,977
 
Investment securities available for
sale
   
6,715
     
6,958
     
7,468
     
12,427
     
8,790
     
12,054
 
Investment securities held to
maturity
   
313
     
314
     
--
     
--
     
14,932
     
20,735
 
Loans, net
   
285,252
     
278,646
     
247,539
     
208,489
     
191,059
     
169,777
 
Investment in stock of
correspondent banks
   
2,178
     
2,062
     
1,764
     
1,165
     
1,256
     
1,272
 
Bank premises and equipment, net
   
459
     
471
     
576
     
802
     
817
     
743
 
Total deposits
   
228,864
     
230,240
     
200,487
     
205,639
     
197,719
     
184,745
 
Short-term borrowings
   
8,742
     
2,823
     
955
     
850
     
500
     
--
 
Long-term debt
   
39,895
     
42,936
     
38,268
     
12,350
     
13,200
     
13,700
 
Total liabilities
   
280,460
     
280,324
     
244,381
     
222,493
     
214,301
     
200,819
 
Retained earnings (accumulated
deficit)
   
6,748
     
6,211
     
3,998
     
2,143
     
456
     
(732
)
Accumulated other comprehensive
income
   
92
     
75
     
122
     
221
     
38
     
63
 
Total stockholders' equity
 
$
30,966
   
$
30,392
   
$
26,991
   
$
25,105
   
$
23,236
   
$
22,073
 
 

 
 
18

 
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL DATA

The Unaudited Pro Forma Combined Condensed Consolidated Financial Information has been prepared using the acquisition method of accounting, giving effect to the merger. The Unaudited Pro Forma Combined Condensed Consolidated Statement of Financial Condition combines the historical information of DNB and of ERB as of March 31, 2016 and assumes that the merger was completed on that date. The Unaudited Pro Forma Combined Condensed Consolidated Statements of Income combine the historical financial information of DNB and of ERB and give effect to the merger as if it had been completed as of the beginning of the respective periods presented. The Unaudited Pro Forma Combined Condensed Consolidated Financial Information is presented for illustrative purposes only and is not necessarily indicative of the results of income or financial condition had the merger been completed on the date described above, nor is it necessarily indicative of the results of income in future periods or the future financial condition and results of income of the combined entities. The financial information should be read in conjunction with the accompanying notes to the Unaudited Pro Forma Combined Condensed Consolidated Financial Information. Certain reclassifications have been made to ERB's historical financial information in order to conform to DNB's presentation of financial information.

The actual value of DNB's common stock to be recorded as consideration in the merger will be based on the value as of the closing date of the merger. The proposed merger is targeted for completion in early fourth quarter of 2016. There can be no assurance that the merger will be completed as anticipated. For purposes of the Unaudited Pro Forma Combined Condensed Consolidated Financial Information, the fair value of DNB's common stock to be issued in connection with the merger was based on DNB's closing stock price of $28.52 as of March 31, 2016.

The Unaudited Pro Forma Combined Condensed Consolidated Financial Information includes estimated adjustments, including adjustments to record ERB's assets and liabilities at their respective fair values, and represents DNB's pro forma estimates based on available fair value information as of the date of the merger agreement. In some cases, where noted, more recent information has been used to support estimated adjustments in the pro forma financial information.

The pro forma adjustments are subject to change depending on changes in interest rates and the components of assets and liabilities and as additional information becomes available and additional analyses are performed. The final allocation of the purchase price for the merger will be determined after it is completed and after completion of thorough analyses to determine the fair value of ERB's tangible and identifiable intangible assets and liabilities as of the date the merger is completed. Increases or decreases in the estimated fair values of the net assets as compared with the information shown in the Unaudited Pro Forma Combined Condensed Consolidated Financial Information may change the amount of the purchase price allocated to goodwill and other assets and liabilities and may impact DNB's statement of income due to adjustments in yield and/or amortization of the adjusted assets or liabilities. Any changes to ERB's stockholders' equity, including results of operations from March 31, 2016 through the date the merger is completed, will also change the purchase price allocation, which may include the recording of a lower or higher amount of goodwill. The final adjustments may be materially different from the unaudited pro forma adjustments presented herein.

We anticipate that the merger will provide the combined company with financial benefits that include reduced operating expenses. The Unaudited Pro Forma Combined Condensed Consolidated Financial Information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings or opportunities to earn additional revenue and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined during these periods.

The Unaudited Pro Forma Combined Condensed Consolidated Financial Information has been derived from and should be read in conjunction with the historical consolidated financial statements and the related notes of DNB and of ERB, which appear elsewhere in this document.
 
 
19

 
COMBINED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF FINANCIAL CONDITION
(Unaudited)

 
 
As of March 31, 2016*
 
 
 
DNB Historical
   
ERB Historical
   
Pro Forma Adjustments
   
   
Pro Forma Combined
 
 
 
(In Thousands)
 
Assets
             
     
Cash and cash equivalents
 
$
38,740
   
$
12,344
   
$
(12,201
)
   
(1
)
 
$
38,883
 
Investment securities
   
207,023
     
8,498
     
(129
)
   
(2
)
   
215,392
 
Loans held for sale
   
359
     
-
                     
359
 
Loans receivable
   
489,366
     
288,816
     
(2,462
)
   
(3
)
   
775,720
 
Allowance for credit losses
   
(5,172
)
   
(3,564
)
   
3,564
     
(3
)
   
(5,172
)
Net loans
   
484,194
     
285,252
     
1,102
     
(3
)
   
770,548
 
Restricted stock
   
3,166
     
2,178
                     
5,344
 
Office property and equipment, net
   
7,817
     
459
                     
8,276
 
Accrued interest receivable
   
2,569
     
1,034
                     
3,603
 
Other real estate owned & other rep. property
   
2,612
     
417
                     
3,029
 
Bank owned life insurance (BOLI)
   
9,381
     
-
                     
9,381
 
Core deposit intangible
   
63
     
-
     
2,013
     
(4
)
   
2,076
 
Net deferred taxes
   
2,946
     
645
     
41
     
(5
)
   
3,632
 
Goodwill
   
-
     
-
     
14,735
     
(6
)
   
14,735
 
Other assets
   
2,570
     
599
                     
3,169
 
Total assets
 
$
761,440
   
$
311,426
   
$
5,561
           
$
1,078,427
 
 
                                       
Liabilities
                                       
Non-interest-bearing deposits
 
$
131,951
   
$
21,546
           
$
     
$
153,497
 
Interest-bearing deposits
   
505,104
     
207,318
     
721
     
(7
)
   
713,143
 
Total deposits
   
637,055
     
228,864
     
721
             
866,640
 
Federal Home Loan Bank advances
   
20,000
     
48,637
     
359
     
(8
)
   
68,996
 
Repurchase agreements
   
21,661
     
-
                     
21,661
 
Junior subordinated debentures
   
9,279
     
-
                     
9,279
 
Subordinated debt
   
9,750
     
-
                     
9,750
 
Other borrowings
   
454
     
949
                     
1,403
 
Accrued interest payable
   
313
     
129
                     
442
 
Other liabilities
   
4,748
     
1,881
     
56
     
(10
)
   
6,685
 
Total liabilities
   
703,260
     
280,460
     
1,136
             
984,856
 
 
                                       
Stockholders' Equity
                                       
Preferred stock
   
-
     
-
     
-
             
-
 
Common equity
   
58,180
     
30,966
     
4,425
     
(9
)
   
93,571
 
Total stockholders' equity
   
58,180
     
30,966
     
4,425
             
93,571
 
Total liabilities and stockholders' equity
 
$
761,440
   
$
311,426
   
$
5,561
           
$
1,078,427
 
 
                                       
*Assumes that the merger was completed as of March 31, 2016 utilizing the acquisition method of accounting. Estimated fair value adjustments for loans, investment securities, core deposit intangible, deposits and borrowed funds were determined by the management of DNB and of ERB. Actual fair value adjustments, where appropriate, will be determined by a specialist, engaged by management, as of the merger completion date.
 
 
(1)    The adjustment includes cash consideration of $6.7 million paid to ERB stockholders, $1.9 million paid to holders of the in-the-money ERB stock options and $1.2 million paid to ERB executives in connection with change of control arrangements. Additionally, it is assumed that cash and cash equivalents will be used to pay $347,000 for after tax one-time merger expenses of ERB and $2.1 million for after tax one-time merger expenses of DNB.
 
 
(2)     Represents the fair value adjustment to the carrying value of ERB's investment securities.
 

(3)   The pro forma adjustment of $2.5 million includes a negative $4.6 million credit component and a positive $2.1 million interest component. The weighted average rate on ERB's loans was 4.69%. The existing ERB allowance for loan losses of $3.6 million is prohibited to be carried over according to GAAP.
 
 
 
 

 
 
20

(4)     Represents the recognition of the fair value of the core deposit intangible asset, which is assumed to be 1.60% of core deposit liabilities assumed. Core deposits are defined as total deposits less time deposits. The Core Deposit intangible has a weighted average remaining useful life of 10 years and is being amortized into income using the level yield method.
 
 
(5)    Represents adjustments in the net deferred tax assets resulting from the fair value adjustments related to the acquired assets and assumed liabilities, identifiable intangibles and other deferred tax items. The $651,000 represents the estimated tax benefit on the $1.9 million cash consideration paid for ERB's options. The fair value adjustment of the net deferred tax asset assumes an effective tax rate of 34% and was estimated to be $610,000.
 
 
(6)     Calculated to reflect the acquisition accounting adjustments related to the merger. The consideration paid to acquire ERB consists of cash of $8.6 million and the issuance of 1,368,611 shares of DNB common stock based upon the fixed exchange rate of 0.6562 applied to 2,085,662 of the 2,444,911 shares of ERB common stock outstanding. The $28.52 value of DNB common stock is based upon the closing stock price of $28.52 as of March 31, 2016. Acquisition accounting adjustments assume that ERB's stockholders' equity is eliminated and the purchase price, goodwill and intangible assets are reflected on the DNB's financial statements pursuant to the application of acquisition accounting.
 
 
 
   
 
 
 
Note 
 
(In Thousands)
 
Purchase Price and Estimated Goodwill
 
   
 
Value of DNB's common stock to be issued
 
   
$
39,033
 
Cash consideration ERB common stockholders
 
     
6,700
 
Cash consideration for ERB options
 
     
1,915
 
Purchase price as of March 31, 2016
 
     
47,648
 
ERB's net assets:
 
         
ERB's stockholders' equity
 
     
30,966
 
Estimated tax benefit of option cash out
   
(5
)
   
651
 
ERB's stockholders' equity, net of transaction costs
           
31,617
 
Fair value adjustments:
               
Investments
           
(129
)
Loans
   
(3
)
   
1,102
 
Core deposit intangible
   
(4
)
   
2,013
 
Time deposits
   
(7
)
   
(721
)
FHLB advances
   
(8
)
   
(359
)
Tax effect of fair value adjustments
   
(5
)
   
(610
)
Total adjustment of net assets acquired
           
1,296
 
Fair Value of net assets acquired
           
32,913
 
Estimated goodwill
   
(6
)
 
$
14,735
 
 
               
(7)    Adjustment to reflect the difference between portfolio yields and market rates for time deposits acquired in the merger. The weighted average rate on ERB's time deposits was 1.29%. Adjustments were calculated using present value analysis. Cash flow was discounted to present value using market rates for similar deposits. The yield adjustment is the aggregate present value of the difference.
 
 
(8)    Adjustments reflect the difference between portfolio yields and market rates for borrowings acquired in the merger. The weighted average rate on ERB's FHLB advances was 1.76%. Adjustments were calculated using present value analysis. Cash flow for each month was calculated as the difference between projected interest costs of the remaining borrowings and hypothetical costs using current market rates based on advances from the Federal Home Loan Bank of Pittsburgh. Cash flow was discounted to present value using market rates.
 
 
(9)     Reflects elimination of ERB's equity accounts, issuance of 1,368,611 shares of DNB's common stock and additional merger-related transaction costs, net of tax calculated as follows:
 
 
Value of DNB's common stock to be issued
 
$
39,033
 
ERB's stockholders equity
   
(30,966
)
Change in control related expenses
   
(1,223
)
ERB merger expenses
   
(347
)
DNB merger expenses
   
(2,072
)
Total
 
$
4,425
 
 
(10)   Represents the liability payable to holders of ERB stock options, due to the acceleration of vesting.
  
 
 
 
21

 
COMBINED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
(Unaudited)

For the Three Months Ended March 31, 2016 (1)
 
(Dollars in thousands, Except Per Share Data)
 
 
             
     
 
 
DNB
Historical
   
ERB
Historical
   
Pro Forma Adjustments
   
   
Pro Forma Combined
 
Interest Income:
             
     
Interest and fees on loans
 
$
5,068
   
$
3,598
   
$
189
     
(2
)
 
$
8,855
 
Interest and dividends on investment securities
   
1,016
     
65
                     
1,081
 
Interest on cash and cash equivalents
   
21
     
20
                     
41
 
Total interest and dividend income
   
6,105
     
3,683
     
189
             
9,977
 
Interest Expense:
                                       
Deposits
   
343
     
466
     
(45
)
   
(2
)
   
764
 
Borrowings
   
307
     
203
     
(22
)
   
(2
)
   
488
 
Total interest expense
   
650
     
669
     
(67
)
           
1,252
 
Net interest income
   
5,455
     
3,014
     
256
             
8,725
 
Provision for credit losses
   
330
     
184
                     
514
 
Net interest income after provision for credit losses
   
5,125
     
2,830
     
256
             
8,211
 
Non-interest Income:
                                       
Service charges and other fees
   
625
     
85
                     
710
 
Wealth management
   
397
     
-
                     
397
 
Mortgage banking
   
32
     
6
                     
38
 
Increase in cash surrender value of BOLI
   
55
     
-
                     
55
 
Gain on sale of investment securities, net
   
31
     
-
                     
31
 
Gain on sale of loans
   
39
     
159
                     
198
 
Gains from insurance proceeds
   
1,150
     
-
                     
1,150
 
Total non-interest income
   
2,329
     
250
                     
2,579
 
Non-interest Expense: (3)
                                       
Salaries and employee benefits
   
3,126
     
1,030
                     
4,156
 
Occupancy
   
797
     
154
                     
951
 
Professional and consulting
   
309
     
146
                     
455
 
Advertising and marketing
   
183
     
105
                     
288
 
FDIC insurance
   
129
     
46
                     
175
 
PA shares tax
   
162
     
-
                     
162
 
Telecommunications
   
61
     
36
                     
97
 
Amortization of Core Deposit Intangible
   
4
     
-
     
92
     
(2
)
   
96
 
Due diligence and merger-related expenses
   
188
     
175
     
(363
)
   
(6
)
   
-
 
Other expenses
   
459
     
496
                     
955
 
Total non-interest expense
   
5,418
     
2,188
     
(271
)
           
7,335
 
Income before income tax expense
   
2,036
     
892
     
527
             
3,455
 
Income tax expense
   
480
     
355
     
179
     
(5
)
   
1,014
 
Net income
 
$
1,556
   
$
537
   
$
348
           
$
2,441
 
Preferred stock dividends and accretion of discount
   
-
     
-
                     
-
 
Net income available to common shareholders
 
$
1,556
   
$
537
   
$
348
           
$
2,441
 
Earnings per common share: (4)
                                       
   Basic
 
$
0.55
   
$
0.22
                   
$
0.58
 
   Diluted
 
$
0.54
   
$
0.22
                   
$
0.58
 
Weighted average common shares outstanding: (4)
                                       
   Basic
   
2,833
     
2,445
                     
4,201
 
   Diluted
   
2,869
     
2,474
                     
4,238
 
 


 
22

 
COMBINED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
(Unaudited)
 
             
     
For the Year Ended December 31, 2015 (1)
 
(Dollars in thousands, Except Per Share Data)
 
 
             
     
 
 
DNB
Historical
   
ERB
Historical
   
Pro Forma Adjustments
   
   
Pro Forma
Combined
 
Interest Income:
             
     
Interest and fees on loans
 
$
20,082
   
$
13,178
   
$
757
     
(2
)
 
$
34,017
 
Interest and dividends on investment securities
   
4,354
     
272
                     
4,626
 
Interest on cash and cash equivalents
   
42
     
57
                     
99
 
Total interest and dividend income
   
24,478
     
13,507
     
757
             
38,742
 
Interest Expense:
                                       
Deposits
   
1,165
     
1,708
     
(180
)
   
(2
)
   
2,693
 
Borrowings
   
1,547
     
798
     
(90
)
   
(2
)
   
2,255
 
Total interest expense
   
2,712
     
2,506
     
(270
)
           
4,948
 
Net interest income
   
21,766
     
11,001
     
1,027
             
33,794
 
Provision for credit losses
   
1,105
     
408
                     
1,513
 
Net interest income after provision for credit losses
   
20,661
     
10,593
     
1,027
             
32,281
 
Non-interest Income:(3)
                                       
Service charges and other fees
   
2,443
     
333
                     
2,776
 
Wealth management
   
1,485
     
-
                     
1,485
 
Mortgage banking
   
171
     
118
                     
289
 
Increase in cash surrender value of BOLI
   
228
     
-
                     
228
 
Gain on sale of investment securities, net
   
78
     
-
                     
78
 
Gain on sale of loans
   
484
     
105
                     
589
 
Gains from insurance proceeds
   
120
     
-
                     
120
 
Total non-interest income
   
5,009
     
556
                     
5,565
 
Non-interest Expense:
                                       
Salaries and employee benefits
   
10,551
     
4,161
                     
14,712
 
Occupancy
   
3,158
     
724
                     
3,882
 
Professional and consulting
   
1,185
     
538
                     
1,723
 
Advertising and marketing
   
631
     
391
                     
1,022
 
FDIC insurance
   
497
     
177
                     
674
 
PA shares tax
   
602
     
-
                     
602
 
Telecommunications
   
245
     
127
                     
372
 
Loss on sale or write down of OREO, net
   
134
     
-
                     
134
 
Amortization of Core Deposit Intangible
   
16
     
-
     
366
     
(2
)
   
382
 
Due diligence and merger-related expenses
   
-
     
-
                     
-
 
Other expenses
   
2,010
     
1,656
                     
3,666
 
Total non-interest expense
   
19,029
     
7,774
     
366
     
(3
)
   
27,169
 
Income (loss)before income tax expense
   
6,641
     
3,375
     
661
             
10,677
 
Income tax expense
   
1,503
     
1,162
     
225
     
(5
)
   
2,890
 
Net income
 
$
5,138
   
$
2,213
   
$
436
           
$
7,787
 
Preferred stock dividends and accretion of discount
   
50
     
-
                     
50
 
Net income available to common shareholders
 
$
5,088
   
$
2,213
   
$
436
           
$
7,737
 
Earnings per common share: (4)
                                       
    Basic
 
$
1.82
   
$
0.92
                   
$
1.88
 
    Diluted
 
$
1.79
   
$
0.91
                   
$
1.84
 
Weighted average common shares outstanding: (4)
                                       
    Basic
   
2,802
     
2,394
                     
4,120
 
    Diluted
   
2,847
     
2,423
                     
4,195
 

(1)            Assumes that the merger was completed as of the beginning of the period presented utilizing the acquisition method of accounting. Estimated fair value adjustments for investment securities, loans, core deposit intangible, time deposits and borrowed funds were determined by the management of DNB and of ERB.

 
 
23

 
(2)     The resulting premiums and discounts for purposes of the unaudited combined condensed consolidated pro forma financial data, are being amortized and accreted into income over the estimated remaining lives of the respective assets and liabilities using the level yield method. The estimated weighted average remaining useful lives of loans, time deposits and FHLB advances is 4 years and the weighted average remaining useful life of the core deposit intangible is 10 years.
 
(3)     Noninterest expenses do not include one-time merger and integration expenses. Those amounts, on an after-tax basis, total $2.9 million. In determining the fair value of the assets acquired in this transaction, remaining costs of $347,000 to be incurred by ERB are deducted from ERB's total equity in determining the fair value of assets acquired and are not included in Unaudited Pro Forma Combined Condensed Consolidated Financial Information net income. In addition, DNB expects to incur approximately $2.1 million, on an after-tax basis, in total transaction costs as a result of the proposed merger. Through March 31, 2016, pre-tax transaction costs of $188,000 and $175,000 have been recognized by DNB and ERB, respectively. Non-interest expenses do not reflect anticipated costs savings. A summary of DNB's transaction costs is as follows (in thousands):

Professional fees
 
$
585
 
Other merger related expenses
   
947
 
Data processing termination and conversion cost
   
1,608
 
Estimated pre-tax transaction costs
   
3,140
 
Less related tax benefit
   
(1,068
)
Estimated transaction costs, net of taxes
 
$
2,072
 

Professional fees include investment banking, legal, accounting and other professional fees and expenses associated with the merger. Other merger related expenses include marketing, printing, integration, contract termination costs and other expenses. The foregoing estimates may be refined after the completion of the merger.

(4)     Basic and diluted weighted average common shares outstanding were determined by adding the number of shares issuable to ERB's stockholders to DNB's historical weighted average basic and diluted outstanding common shares. The stock consideration paid to ERB's stockholders consists of the issuance of 1,368,611 shares of DNB's common stock based upon the fixed exchange rate of 0.6562 applied to 2,085,662 of the 2,444,911 shares of ERB common stock outstanding. The share amounts above do not reflect the impact related to the payout of 250,000 existing in-the-money stock options owned by directors and employees of ERB. The anticipated payout of these options totals $1,915,000.
 
(5)    Reflects the tax impact of the pro forma acquisition adjustments at DNB's statutory income tax rate of 34%.

(6)     Represents elimination of the actual, out of pocket, due diligence and merger-related expenses totaling $363,000, primarily professional fees incurred in the first quarter of 2016 by DNB totaling $188,000 and $175,000 for ERB.
 
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RISK FACTORS

In addition to general investment risks and the other information contained in this joint proxy statement/prospectus, including the matters addressed under the heading "Cautionary Statement Regarding Forward-Looking Statements," you should carefully consider the following risk factors in deciding how to vote on the proposals presented in this joint proxy statement/prospectus.

Risk Factors Related to the Merger

Because the market price of DNB common stock will fluctuate, ERB shareholders cannot be sure of the exact market value of the DNB common stock they may receive as merger consideration.

Upon completion of the merger, each share of ERB common stock will be converted into the right to receive merger consideration consisting of shares of DNB common stock and/or cash pursuant to the terms of the merger agreement, subject to the limitations on the maximum amount of shares that may be issued and cash paid and the proration provisions of the merger agreement, which apply in the event that ERB shareholders making elections as to their preferred form of consideration oversubscribe for shares of DNB common stock or cash. The market value of the DNB common stock constituting a portion of the merger consideration may vary from the closing price of DNB common stock on the date the parties initially announced the merger, on the date that this joint proxy statement/prospectus was first mailed or delivered to DNB and ERB shareholders, on the dates of the respective special meetings of the DNB and ERB shareholders and on the date the merger is completed and thereafter. Any change in the market price of DNB common stock prior to completion of the merger will affect the market value of the portion of the merger consideration consisting of DNB shares. Accordingly, at the time of the respective special meetings of shareholders, DNB and ERB shareholders will not know or be able to calculate the market value of the DNB common stock constituting the shares portion of the merger consideration that ERB shareholders may receive upon completion of the merger. Neither DNB nor ERB is generally permitted to terminate the merger agreement or re-solicit the vote of DNB or ERB shareholders solely because of changes in the market prices of DNB's stock. However, ERB may terminate the merger agreement in certain limited circumstances involving a decrease in the trading price of DNB's common stock, if (i) the average closing price of DNB common stock during a specified period prior to closing is less than the product of 0.800 and $29.16 and (y) DNB's common stock underperforms the NASDAQ Bank Index by more than 20%, unless DNB elects to make a compensating adjustment to the exchange ratio. Other than a possible compensating adjustment by DNB to the exchange ratio under these circumstances, the parties do not expect that any adjustment will be made to the exchange ratio based on changes in the stock price of either company.  Stock prices may change as a result of a variety of factors, including general market and economic conditions, changes in DNB's and ERB's respective businesses, operations and prospects, and regulatory considerations. Many of these factors are beyond the control of either DNB or ERB. You should obtain current market quotations for shares of DNB common stock.

ERB shareholders may receive a form of consideration that is different from their elections.

As described elsewhere in this joint proxy statement/prospectus, ERB shareholders will be able to elect to receive either cash or shares of DNB common stock as consideration in the merger. However, the merger agreement limits the amount of cash and shares of DNB common stock available to fulfill the elections of ERB shareholders, and, as a result, ERB shareholders may receive a form of merger consideration that is different from the form they specified in their elections. The election of shares of DNB common stock or cash will be subject to proration such that 2,085,662 shares of ERB common stock, or approximately 85.3% of the currently outstanding ERB shares, will be exchanged for shares of DNB common stock, with the remaining ERB shares to be exchanged for cash. The aggregate cash consideration payable to ERB shareholders will be $6.7 million, which amount is subject to increase in the event that outstanding options to purchase shares of ERB common stock are exercised prior to completion of the merger. If an ERB shareholder elects all cash and the cash portion of the merger consideration is oversubscribed, that shareholder will receive a portion of the merger consideration in DNB common stock. If an ERB shareholder elects all stock and the DNB shares portion of the merger consideration is oversubscribed, that shareholder will receive a portion of the merger consideration in cash.  Please see "The Merger Agreement — Proration Procedures" beginning on page 80 of this joint proxy statement/prospectus for a more detailed description of the proration provisions applicable to the elections made by ERB shareholders.

The market price of DNB common stock following the completion of the merger may be affected by factors different from those currently affecting the shares of DNB or ERB.

Upon completion of the merger, holders of ERB common stock will become holders of DNB common stock. DNB's business and operations differ in certain important respects from that of ERB and, accordingly, the results of operations of the combined company and the market price of DNB common stock following completion of the merger may be affected by factors different from those currently affecting the independent results of operations of each of DNB and ERB.

Please see "Information About DNB" and "Information About ERB" beginning on page 113 and page 150, respectively, for a discussion of the businesses of DNB and ERB and of some important factors to consider in connection with those businesses.
25


ERB will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on ERB and, consequently, on DNB. These uncertainties may impair ERB's ability to attract, retain and motivate key personnel until the merger is consummated, and could cause customers and others that have business dealings with ERB to seek to terminate or change their existing business relationships with ERB. Retention of certain employees may be challenging during the pendency of the merger, as certain employees may experience uncertainty about their future roles with the combined company. If key employees depart prior to the completion of the merger or decide not to remain with the combined company following completion of the merger, DNB's business following the merger could be adversely affected. In addition, the merger agreement restricts ERB from making certain acquisitions and taking other specified actions until the merger occurs without the consent of DNB. These restrictions may prevent ERB from pursuing attractive business opportunities that may arise prior to the completion of the merger.

Please see "The Merger Agreement – Covenants and Agreements" beginning on page 83 for a description of the restrictive covenants to which ERB is subject.

The opinions of DNB's and ERB's respective financial advisors will not reflect changes in circumstances between the signing of the merger agreement and the completion of the merger.

Neither DNB nor ERB has obtained an updated opinion as of the date of this joint proxy statement/prospectus from its respective financial advisor. Changes in the operations and prospects of DNB or ERB, general market and economic conditions and other factors that may be beyond the control of DNB or ERB, including changes in factors on which the fairness opinions were based, may significantly alter the value of the companies or the share prices of DNB common stock or ERB common stock by the time the merger is completed. Neither financial advisor's opinion speaks as of the time the merger will be completed or as of any date other than the date of such opinion. Each of DNB's and ERB's board of directors' recommendations that DNB and ERB shareholders vote "FOR" approval of the proposals relating to the merger, however, is made as of the date of this joint proxy statement/prospectus. Neither DNB nor ERB currently anticipates asking its respective financial advisor to update its opinion.

Please see "The Merger – Opinion of DNB's Financial Advisor" and "The Merger – Opinion of ERB's Financial Advisor" beginning on page 54 and page 64, respectively for information regarding the opinions of DNB's and ERB's respective financial advisors.  Please see "The Merger – Background of the Merger," "The Merger – DNB's Reasons for the Merger; Recommendation of DNB's Board of Directors," and "The Merger – ERB's Reasons for the Merger; Recommendation of ERB's Board of Directors" beginning on page 50, page 52 and page 62, respectively for a discussion of additional factors considered by DNB's board of directors and ERB's board of directors in determining to recommend that shareholders approve the proposals relating to the merger.

Combining the two companies may be more difficult, costly or time-consuming than expected and the anticipated benefits and cost savings of the merger may not be realized.

DNB and ERB have operated and, until the completion of the merger, will continue to operate, independently. The challenges involved in combining the operations of the two companies include, among other things, integrating personnel with diverse business backgrounds, combining different corporate cultures, and retaining key employees. It is possible that the integration process could result in the loss of key employees or disruption of each company's ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect DNB's ability to maintain relationships with customers and employees or to achieve the anticipated benefits of the merger. The integration of the two companies will require the experience and expertise of certain key employees of ERB who are expected to be retained by DNB. DNB may not be successful in retaining these employees for the time period necessary to successfully integrate ERB's operations with those of DNB.  In addition, as with any merger of banking institutions, there also may be business disruptions that cause us to lose customers or cause customers to take their deposits out of DNB's banks. The success of the combined company following the merger may depend in large part on the ability to integrate the two businesses, business models and cultures. DNB may not be able to successfully achieve the level of cost savings, revenue enhancements, and other anticipated synergies, and may not be able to capitalize upon the existing customer relationships of ERB to the extent anticipated, or it may take longer, or be more difficult or expensive than expected to achieve these goals. If DNB is not able to integrate the companies' operations successfully and in a timely manner, the expected benefits of the merger may not be realized, and this could have an adverse effect on DNB's business, results of operation and stock price.

Regulatory approvals may not be received, may take longer than expected or impose conditions that are not currently anticipated.

Before the transactions contemplated by the merger agreement, including the merger, may be completed, various approvals or consents must be obtained from the Federal Reserve Board, the Office of the Comptroller of the Currency, and other bank regulatory and other authorities. These governmental entities may impose conditions on the completion of the merger or require changes to the terms of the merger agreement. Although DNB and ERB do not currently expect that any such conditions or changes will be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the transactions contemplated by the merger agreement or imposing additional costs on or limiting the revenues of DNB, any of which might have a material adverse effect on DNB following the merger. There can be no assurance as to whether the necessary regulatory approvals will be received, the timing of those approvals, or whether any non-standard and/or non-customary conditions will be imposed.

26

The merger agreement limits ERB's ability to pursue alternatives to the merger.

The merger agreement includes provisions that limit ERB's ability to pursue alternative proposals from third parties to acquire all or a significant part of ERB. Subject to certain specified exceptions, these "no shop" provisions limit ERB's ability to discuss, facilitate or commit to competing third-party acquisition proposals. In addition, a termination fee would be payable by ERB to DNB under certain circumstances, generally involving a determination by ERB to pursue an alternative transaction. These provisions could discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of ERB from considering or proposing an acquisition, even if it were prepared to pay consideration with a higher per share value than that proposed to be paid by DNB to ERB shareholders in the merger, or might result in a potential competing acquiror proposing to pay a lower per share price to acquire ERB than it might otherwise have proposed to pay.

If the conditions to the merger are not met or waived, the merger will not occur.

Specified conditions in the merger agreement must be satisfied or waived in order to complete the merger, including shareholder approval of the proposals being submitted to shareholders of DNB and ERB at their respective special meetings.  DNB and ERB cannot assure you that each of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the merger will not occur or will be delayed, which could cause some or all of the intended benefits of the merger to be lost and could adversely affect the value of DNB's and/or ERB's shares.

The merger may be completed even though DNB or ERB experiences adverse changes in its business.

In general, either DNB or ERB may refuse to complete the merger if the other party suffers a material adverse effect on its business prior to the closing of the merger. However, certain types of changes or occurrences with respect to DNB or ERB would not prevent the merger from going forward, even if the change or occurrence would have adverse effects on DNB or ERB, including the following:
 
 
changes in laws and regulations affecting banks or thrift institutions or their holding companies generally, or interpretations thereof by courts or governmental entities, if such changes do not have a disproportionate impact on the affected company;
 
 
changes in GAAP or regulatory accounting principles generally applicable to financial institutions and their holding companies, if such changes do not have a disproportionate impact on the affected company;
 
 
actions and omissions of DNB or ERB with the prior written consent of the other party;
 
 
changes or effects from the announcement of the merger agreement and the transactions contemplated thereby, and compliance by the parties with the merger agreement on the business, financial condition or results of operations of the parties;